HIGHLIGHTS-Hong Kong budget for fiscal 2018/19

HONG KONG, Feb 28 (Reuters) - The following are highlights of Hong Kong’s budget for the 2018/19 fiscal year starting in April. As one of the most open and free economies in the world, Hong Kong’s growth is highly reliant on capital, trade, tourist and investment flows from China. A surge in domestic spending, a rise in visitors from the mainland and improved retail spending helped ramp up GDP last year after a difficult 2016. The budget is being presented on Wednesday by Financial Secretary Paul Chan. BUDGET * Govt says 2017/18 provisional budget surplus at HK$138 billion ($17.63 billion) * Govt expects fiscal reserves at HK$1,092 billion by end-March 2018 * Govt forecast 2018/19 consolidated budget surplus of HK$46.6 billion * Fiscal reserves forecast at approximately HK$1,138.6 billion by end-March 2019 * Govt expects an overall surplus in next five years ECONOMY * 2017 GDP up +3.8 pct, vs govt’s forecast of +3.7 pct * Forecasts 2018 GDP growth 3-4 percent * Expects 2018 headline inflation at +2.2 percent * Forecasts 2018 underlying inflation at +2.5 percent * 2017 Q4 GDP up 3.4 percent on year vs Reuters survey of 6 economists at 3.2 percent * 2017 Q4 GDP up seasonally adjusted 0.8 percent on quarter * Average GDP growth forecast at 3 percent per annum in real terms from 2019-2022 SUPPORTIVE MEASURES FOR INDUSTRIES * Reserves HK$$50 billion for supporting I&T development, vs HK$10 billion in last budget * Support start-ups, promote development of digital technology ecosystem, e-sports, and to fund Technology Talent Scheme * Launches a three-year Pilot Bond Grant Scheme, covering firms issuing bonds in Hong Kong for the first time, to attract local, mainland and overseas enterprises to issue bonds in the city * To support about 330,000 small and medium enterprises, the government will inject HK$1.5 billion into a dedicated fund on branding, and another HK$1 billion into export marketing funds

NEW DEBT ISSUE * Govt to launch green bond issuance programme with a borrowing ceiling of HK$100 billion, to provide funding for green public works projects * To continue the issuance of Silver Bonds in 2018 and 2019, targeting Hong Kong residents aged 65 or above PROPERTY * Identifies over 210 sites with housing development potential in short to medium term, providing more than 310,000 flats * Estimates public housing production for the next five years at about 100,000 units * For private housing, the private sector will complete about 20,800 units annually in the next five years, up about 50 percent over the past five years * Including 15 sites rolled over from 2017-18, the 2018-19 Land Sale Programme comprises a total of 27 residential sites capable of providing 15,200 residential units

SALARY * Govt to widen tax bands for salaries tax to HK$50,000 from HK$45,000 * To increase basic and additional child allowances to HK$120,000 from the current HK$100,000 * Govt to reduce salaries tax payable by 75 percent, capped at HK$30,000 PROFITS TAX * Govt to reduce profits tax payable by 75 percent, capped at HK$30,000 * To waive rates for four quarters of 2018-19, subject to a ceiling of $2,500 per quarter for each rateable property

VEHICLE TAX * Govt will extend waiver on first registration tax for electric vehicles till March 31, 2021, encouraging car owners to go for electric vehicles

EXPENDITURES * Total government revenue for 2018-19 is estimated at HK$604.5 billion. Revenue from land premium is estimated to be HK$121 billion, and from stamp duties, HK$100 billion * Overall expenditure for 2018-19 is estimated at HK$557.9 billion, up 17.6 percent compared with revised estimate for 2017-18 * Operating expenditure for 2018-19 is estimated to be HK$441.5 billion, a year-on-year increase of 18.4 percent * Recurrent expenditure, which accounts for over 90 percent of operating expenditure, will reach HK$406.5 billion, up 11.8 percent year on year * In 2018-19, the civil service establishment is expected to expand by 6,700 posts to 188,451 * Govt forecasts a surplus of HK$46.6 billion in the Consolidated Account in the coming year * Fiscal reserves are estimated at HK$1,138.6 billion by the end of March 2019, equivalent to 40.3 percent of GDP.

MEDIUM TERM FORECASTS * Average economic growth rate is forecast to be three percent per annum in real terms from 2019 to 2022, slightly higher than the trend growth rate of 2.7 percent over the past decade * Annual expenditure on infrastructure projects will soon exceed HK$100 billion * Fiscal reserves are estimated at HK$1,222.6 billion by the end of March 2023, representing 35.6 percent of GDP or equivalent to 21 months of government expenditure * The government will have an overall surplus in the next five years COMMENTS * “The budget is not a panacea for all our problems, but I am deeply grateful for the many people who devote themselves to the betterment of our home, Hong Kong.” * “If we can capitalise on the opportunities, the wind beneath our wings will bear Hong Kong far and high.” * “Land and housing supply has been a long-standing problem in Hong Kong. The government has been making every effort to identify land and boost housing supply.” * “Over the years, Hong Kong has weathered many storms, and always emerged stronger through changes...I strongly believe that as long as we embrace hope, find the right direction and steel our resolve, we will be able to brave the wind and the billows to turn our dreams into reality.”

$1 = 7.8285 Hong Kong dollars Reporting by Hong Kong Newsroom Editing by Jacqueline Wong