Press Release - March 5, 2003

The Financial Secretary of the Hong Kong Special Administrative Region (HKSAR) Government, Mr Antony Leung, today (March 5) unveiled a series of expenditure-cutting and revenue-raising measures to restore fiscal balance by 2006-07 and boost economic activity in Hong Kong.

Delivering the 2003-04 Budget, his second, Mr Leung said: �We believe that the package of measures announced this afternoon will enable us to restore balance in our public finances over the medium term, thereby eliminating a factor that may lead to a financial crisis. Investors� confidence in Hong Kong will also be enhanced.�

Mr Leung announced a package of measures that would raise revenue by HK$14 billion.

They include reverting the marginal tax rates and bands as well as basic and married person�s allowances to their pre 1998-99 concession levels, and increase the standard rate (up 1% to 16% by two phases in two years) under salaries tax; increase corporate profits tax (up 1.5% to 17.5%), property tax (up 1% to 16% to be implemented in two phases in two years), duty on exotic horse racing bets(up 1% to 20%), air passenger departure tax (up HK$40 to HK$120), and adjustments to the first registration tax with greater impact on expensive private cars.

Additional revenue will also come from a proposed boundary facilities improvement tax, duty on football betting and the sale or securitisation of HK$112 billion worth of government assets over the next five years. The moratorium on government fees and charges would be lifted after the end of March.

To promote the further development of education and financial services, Mr Leung proposed a number of tax concessions. They include enhancing existing tax concessions for charitable donations and income from qualified debt instruments, as well as profits tax exemptions for offshore funds, and waiver for fixed stamp duty for Hong Kong-domiciled unit trusts.

An extra HK$200 million over the next five years was earmarked to promote the investment advantages of the Greater Pearl River Delta and attract more foreign investment to Hong Kong.

The budget proposals would reduce operating expenditure to HK$200 billion by 2006-07, a cut of HK$20 billion from that originally forecast last year, as well as raise an extra HK$20 billion revenue by 2006-07. The revenue-raising measures announced today would raise HK$14 billion. The balance of HK$6 billion would be raised by measures to be proposed as appropriate over the next three years.

Cost-cutting measures include:

A reduction of social security payments to save HK$1.71 billion a year, with those savings being used to offset an expected increase in social security payments in the next few years.

The HKSAR Government estimates that the operating expenditure will decrease from HK$213.6 billion in 2003-04, to HK$212.2 billion in 2004-05, HK$203.4 billion for 2005-06, and HK$200 billion as targeted for 2006-07.

The HKSAR Government�s total recurrent expenditure for 2003-04 will be HK$207 billion, an increase of 1% over the original estimate of HK$204.9 billion for 2002-03, with 23.8% for Education, 15.8% for Social Welfare, 15.4% for Health, 15.1% for Support, and 12.1% for Security.

With GDP growing by 2.3% in real terms in 2002, Hong Kong�s economy is on an upward trend. Deflation persisted with the GDP deflator dropping by 2.7%. Fiscal deficit is estimated to reach a record of HK$70 billion by 31 March 2003, some 5.5% of GDP.

Welcoming the 2003-04 budget, the Director of Hong Kong Economic and Trade Office (Canada), Mrs. Rosanna Ure, said that it was a balanced and business-friendly budget that should be supported. �Even with a mild increase in the standard rate, the new corporate profits tax, which is still lower than Singapore and other neighbouring territories, will not undermine Hong Kong�s competitiveness.� she said.

Mrs. Ure was pleased to note the profits tax exemptions for offshore funds and the allocation of more resources to attract overseas investments into Hong Kong and the Pearl River Delta Region.

�We strongly believe that with Hong Kong�s economic integration with the Pearl River Delta, Canadian companies can best leverage on Hong Kong�s many advantages to venture into the huge China market,� she added.

�In fact, the HKETO took the initiative of organising a trade mission for 40 Canadian companies to visit Hong Kong and the Pearl River Delta last November and it was very successful. We are obviously pleased with the increased resources which could strengthen the investment promotion work overseas.�

The full implementation of the fiscal and cost-cutting measures, coupled with the predicted growth of the economy at a trend nominal rate of 3% per annum in real terms, will see the HKSAR Government achieving its three fiscal targets of restoring balance in the Operating and Consolidated Accounts and reducing public expenditure to 20% of GDP or below by 2006-07.

The HKSAR Government forecasts an operating deficit of HK$53.4 billion for 2003-04. The operating deficits will gradually decline, falling to HK$500 million in 2006-07.

The full Budget and related documents are available on the HKSAR Government website: www.budget.gov.hk.


For more information, please contact:
John Tam, Chief Information Officer of Hong Kong Economic and Trade Office at: (416) 924-5544 or email: [email protected] or Elison Chu, Senior Information Officer, [email protected].