Restricted
2. Buoyant private investment and low unemployment mean the forecast of inflation staying just under 10 per cent with a fiscal expansion may be over-optimistic. The 1992 IMF report suggested that surpluses of 1.0 to 1.5 per cent GDP would be needed in future years to contain inflation. I expect the medium range forecast will show moderate deficits in 1993/94 and 1994/95 as PADS expenditure increases. There is clearly room for higher levels of taxes to minimise the inflationary effects of PADS. Sale of bonds (HK$ 1.2bn 91/92, HK$ 2.4bn 92/93) are a useful mechanism to deflate the economy, and also boost gross government reserves, and could usefully be expanded over coming years.
3.
Revenue rose to 17.0 per cent GDP in 1991/92 (up 1.3 per cent) and is budgeted to rise a
to rise a further 0.2 per cent GDP
in
1992/93. New tax revenue measures in 1992/93 budget are not substantial, raising an extra HK$ 2.9bn and are partially offset by concessions of HK$ 1.8bn, with net effect of transfer of tax burden from individuals to firms. The increase in property rates
is in line with IMF suggestions whilst the increase in corporation tax was well leaked to the business community and contained in the UDHK platform. The increase in personal tax allowances of 12 per cent is slightly over consumer price
inflation, but falls well short of the UDHK demands for
increases. Abandoning the freeze on user fees a sensible
development.
4.
There is a risk that options for increasing tax in the future are rather limited. The budget makes a commitment to keeping the tax burden low and the Financial Secretary has also effectively ruled out introducing a sales tax for the foreseeable future (para 108, 'I do not regard this as attractive at a time of relatively high inflation'). There was however an indication that salaries tax might be increased at a future date in line with the increase in corporation tax. It is important that tax reform is kept on the agenda to strengthen the fiscal position and to contain expenditure over-runs.