Hong Kong 2017-18 Budget Insights

A “steady-as-we-go” budget

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In presenting his first budget address, the Financial Secretary Mr. Paul Chan may be forgiven for assuming the guise of a caretaker, faithfully repeating many of the mantras that were the hallmark of a predecessor currently seeking an alternative position. There were however a few hopeful signs that, given time, the caretaker may turn out to be a visionary, a transformer of fiscal policy, or at least be more proactive than his predecessor.

To be fair, having only been Financial Secretary for approximately one month, Mr. Paul Chan was most likely faced with a choice of delivering a budget already in the final stages of creation (whilst adding a few tweaks of his own) or starting the drafting process from scratch. This being the last budget of the current administration, may have been a further factor limiting the scope for imagination or moves to a brave new fiscal landscape. Indeed, Chan noted that he dare not boast that he could open up a new world for Hong Kong by one budget alone. Maybe two? This will of course depend, to a degree, on the outcome of the upcoming Chief Executive race.

Thus Mr. Paul Chan delivered the usual budget items, warning of an uncertain global political and economic climate, the challenges of a rapidly ageing population, the need for spending only when necessary and adhering to strict fiscal discipline. In turn, Chan was met with the by now obligatory annual floor show of opposition and expulsion of lawmaker(s) demanding that the Financial Secretary open his purse wider. Also making their regular appearance were the candies, the so-called “sweeteners”, designed to return to an ever expectant society some of this year’s budget surplus.

There were however indications that if Chan is still the Financial Secretary in 2018, he will review Hong Kong’s tax system more broadly, its competiveness internationally and its narrow base. These are issues which various professional bodies and tax advisers have long stressed require immediate attention. The Financial Secretary’s announcement today of the creation of a tax policy unit in the Financial Services and the Treasury Bureau to “comprehensively examine” these issues is a first step in the right direction. Commentators will wait with interest to learn how the Financial Secretary proposes to enable the public and various interested bodies to put forward their ideas for the consideration of the tax policy unit.

Overall, when delivering his first budget, Chan probably had little room to maneuver, chose the safe option of acting as caretaker and delivered a budget that addressed the usual areas and returned to an expectant public a certain portion of the prior year’s surplus. That said, Chan’s pledge to broadly review Hong Kong’s tax system is new. Should Chan remain Financial Secretary in 2018, commentators will judge him more closely with reference to both the degree of input they are allowed to the review process conducted by the tax policy unit and the quality of its output.

Highlights

  • Reduce profits tax, salaries tax and tax under personal assessment for 2016-17 by 75%, capped at $20,000
  • Widen the marginal bands for salaries tax from $40,000 to $45,000
  • Raise disabled dependent allowance from $66,000 to $75,000
  • Raise dependent brother/sister allowance from $33,000 to $37,500
  • Extend the entitlement period for the tax reduction for home loan interest from 15 years of assessment to 20 years of assessment
  • Raise the deduction ceiling for self-education expenses from $80,000 to $100,000
  • Waive government rates for 2017-18, capped at $1,000 per quarter for each rateable property
  • Provide one additional month of Comprehensive Social Security Assistance payment, Old Age Allowance, Old Age Living Allowance, Disability Allowance, Low-income Working Family Allowance and Work Incentive Transport Subsidy
  • Waive licence fees for tourism-related industries including food outlets for a year
  • Issue a second batch of “Silver Bond” (targeting at Hong Kong residents aged 65 or above) in 2017-18

Our Budget Insights summarizes the key proposals contained in the budget and our views thereof.