HONG KONG 1993 BUDGET IN BRIEF
KEY POINTS
Budget prepared against backdrop of strong economic performance - 5% GDP growth in 1992 raising income per head to US$ 16,000.
Growth in China a major factor in Hong Kong's performance, as a services centre for the sub-region.
* Most important economic risks - containing inflation in Hong Kong and non- renewal of US MFN status for China.
* 1992/93 financial year posted a record surplus - HK$ 20.5 billion. (1)
*
Budget strategy continues to be prudent with growth in spending tied to growth of the economy and forecast high and increased level of reserves. (US$2000 per Hong Kong citizen in 1997).
1993/94 expenditure measures include; expansion of social security net and provision of social services, improved road links with China.
**1993/94 tax measures increase income tax allowances and tax bands reducing
taxes for 90% of income earners. Reduced stamp duty on share dealing.
COMMENT
1. The Hong Kong Government has an embarassment of riches - revenues are, as usual, higher than expected and expenditures lower than planned especially for infrastructure projects.
-
2. HKG has rejected the option of accumulating yet more reserves - the forecast 1997 level of HK$78 billion is already more than three times the minimum agreed in the Airport MOU.
3. Instead HKG opted for what will be a popular package of increased expenditure in social sectors and reduced personal taxation. Starting 1993 rising infrastructure spending pushes the budget balance into deficit.
4. Switching from budget surplus to deficit at a time of full employment risks. boosting inflation, currently at 10%. In the longer term this could undermine Hong Kong's competitiveness as a gateway to China. But the main alternative would be to appreciate the HK$ and lose the stability and confidence associated with the fixed exchange rate.
Economic Advisers 4 March 1993