Hong Kong Circle: Hong Kong Economic and Trade Office in Washington D.C. Newsletter

Financial Secretary Unveils Budget Measures

On February 26, Financial Secretary John C. Tsang announced in the 2009-10 budget a multi-pronged strategy to combat the fallout of the global financial crisis.

There are three principles that guided the Financial Secretary in preparing this year's budget: to create jobs and support employment; to increase overall competitiveness; and to facilitate a return to economic growth.

In delivering his annual budget address, Mr. Tsang said that Hong Kong, being a small, open economy, would inevitably be affected by the current financial turmoil.

For 2008, Mr. Tsang reported that Hong Kong's economy contracted by 2.5 percent in the fourth quarter, with GDP growing by 2.5 percent for the year as a whole.

He forecast a decrease in GDP by two to three percent for 2009 – the first negative growth for a whole year since the Asian financial crisis in 1998.

Mr. Tsang announced that a provision of US$205 million would be earmarked to create about 62,000 jobs and internship opportunities. This is in addition to the job creation initiatives announced in December 2008 by the Chief Executive as part of the Hong Kong government's economic stimulus package.

Mr. Tsang said the government would increase public government spending next year to more than US$38.5 billion, easing the pressure of economic contraction, boosting domestic demand and increasing employment opportunities.

Measures unveiled to ease the financial burden on the public, include:

* A one-off tax reduction of 50 percent of salaries tax and tax under personal assessment for 2008-09, up to a maximum of US$769.23. This is expected to benefit 1.4 million taxpayers.

* A rates waiver for the first two quarters of the fiscal year, up to a maximum of US$192.30 per quarter.

* Extending the freeze on government fees and charges related to people's livelihood – announced last July – until March 31, 2010.

Mr. Tsang emphasized that preserving employment was a top priority and outlined four areas for providing and supporting employment.

These comprise a US$51.3 million package for the Labour Department to provide more training and job opportunities, and US$1.7 million in additional funding for the department to assist people who have lost their jobs during the financial crisis.

In addition, US$18 million has been earmarked to help fresh graduates entering the job market this summer through a new internship program, and US$141 million to provide jobs in various sectors.

To enhance the city's overall competitiveness, Mr. Tsang said construction of infrastructure links with the Mainland of China would be hastened, including the Hong Kong-Zhuhai-Macao Bridge, the Guangzhou-Shenzhen-Hong Kong Express Rail Link, the Hong Kong-Shenzhen Airport Rail Link and the Liantang/Heung Yuen Wai Boundary Control Point.

It is estimated that capital works expenditure for 2009-10 will be as high as US$5 billion.

Education will continue to be the government's largest spending area, with US$8 billion to be spent on education in 2009-10.

To strengthen Hong Kong's role as an international financial center, Mr. Tsang said measures would be taken to improve the supervisory framework, enhance financial cooperation with emerging markets and develop the bond market.

On creating new business opportunities, Mr. Tsang said the focus would be on developing technology-based, creative and green economies.

"We will promote the development of new technologies to enhance the competitiveness of Hong Kong through the provision of infrastructure, manpower training, cooperation with the Mainland and other economies and funding schemes," he said.

Mr. Tsang commented that US$38.5 million would be set aside to develop creative industries with strong local characteristics through the promotion of culture and art.

To promote a green economy and a better living environment, Mr. Tsang outlined plans for promoting more energy efficient buildings and introducing electric vehicles to Hong Kong.

To improve energy efficiency in buildings, US$58 million will be allocated for works on government buildings, with another US$58 million to assist owners of private buildings with carbon audits and energy efficiency improvement projects. On the wider use of electric cars, he said he would lead a steering committee to study the matter. "The door is opening to wider use of such vehicles, which are more energy efficient and emit no exhaust gas," he said.

In addition, Mr. Tsang said Hong Kong would expand existing areas of cooperation with the Guangdong provincial government to improve the overall environment.

On health care, Mr. Tsang said the government would increase healthcare expenditure to 17 percent of recurrent expenditure by 2012.

He announced that recurrent subvention for the Hospital Authority would be increased by US$112 million a year for the next three financial years. In other words, the annual subvention in 2011-12 will be approximately US$333 million higher than at present.

Mr. Tsang said that for the sake of public health, the tobacco duty would be increased by 50 percent from around US$2 to US$3 per pack of cigarettes with immediate effect.

Mr. Tsang estimated that 2009-10 operating revenue would be US$30 billion while operating expenditure will be US$31 billion.

The government forecast a deficit of US$1.3 billion in the operating account and a deficit of US$5.1 billion in the consolidated account for 2009-10.

Mr. Tsang predicted a return to surplus in the operating account for 2012-13.

2009-10 Budget: http://www.budget.gov.hk/2009/eng/speech.html

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