EY estimates a fiscal surplus of HK$40 billion for 2013/14
Hong Kong, 13 February 2014 – EY estimates that 2013/14 will return a budget surplus of HK$40 billion, instead of a deficit of HK$4.9 billion as forecast by the government in February 2013. The forecast surplus is primarily due to a record number of land sales, the government having sold 31 pieces of land by mid-February with another 7 sales expected to be concluded by the end of the fiscal year. As a result of these sales, total land premiums for the year will far exceed the original estimate. The higher land revenues, together with lower levels of expenditure than had been expected, will make up for the shortfall in stamp duty revenue and turn the originally budgeted deficit into a surplus for 2013/14. For details of our revised estimate, please refer to Appendix 1.
The expected budget surplus for 2013/14 will propel Hong Kong’s fiscal reserves to HK$773.9 billion by the end of 31 March 2014, amounting to 35% of Hong Kong’s estimated 2013 gross domestic product (GDP). Combining such a level of fiscal reserves with the net accumulated surplus on the Exchange Fund amounting to HK$637.3 billion as at 31 December 2013 (net of the amount required for a 100% backing of the Hong Kong currency), will result in Hong Kong’s effective free fiscal reserves totaling around HK$1.4 trillion. Such a figure will represent 66% of the GDP of Hong Kong or approximately 43 months of government expenditure.
However, Hong Kong still faces many uncertainties such as the impact of the decision by the US Federal Reserve to taper its quantitative easing measures, a possible slowdown in the growth of major emerging markets and a global economy still struggling to switch to a higher gear. Furthermore, it is estimated that the poverty alleviation initiatives proposed by the Chief Executive in last month’s Policy Address will increase recurrent spending by HK$10 billion a year. As such, the government should remain prudent in the upcoming budget.
Nonetheless, given Hong Kong’s large fiscal reserves, EY proposes that the government provide some modest relief measures to reduce the tax burden and economic hardship faced by individuals and businesses, especially small and medium enterprises. It is hoped that these measures will help tide over individuals and businesses during these uncertain economic times. For details of our proposed relief measures, please refer to Table A of Appendix 2.
In the long run, the government must find ways to increase its revenue in order to finance additional recurrent spending. EY agrees with the Chief Executive that Hong Kong should achieve this by developing the economy instead of increasing taxes, especially given that low tax rates are one of Hong Kong’s key competitive advantages. EY earnestly hopes that the government will seriously consider our proposed measures that aim to enhance the competitiveness and attractiveness of Hong Kong’s taxation system. EY believes that implementing our proposed measures would help attract foreign investment and advance the economic development of Hong Kong. For details of our proposed measures, please refer to Table B of Appendix 2.
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This news release has been issued by Ernst & Young, China, a member of the global EY organization.