Wednesday, February 27, 2008

Budget Benefits

The Hong Kong government released its 2008/9 budget today. As expected there was widespread distribution of some of the government's massive surplus. Also as expected (and appropriate) those less well off financially or who are disadvantaged in some way benefited most. (Hong Kong's massively overpaid civil servants had already been given large pay raises without going through the public scrutiny of a budget debate.) However, there were benefits for just about everybody. The items that will affect us are:

1. reduction in tax rate to 15% (from 16%) beginning in 2008/9. This is on going and not a one off reduction;

2. a one time salaries tax rebate of HK$25,000 (about US$3,200) per tax payer for the 2007/8 tax year. As we are a dual income household we will get this rebate twice. There is also a similar rebate on property tax, but I cannot tell from the budget speech whether we will receive both the salaries tax rebate and the property tax rebate or only one;

3. a waiver of rates for 2008/9;

4. an electricity subsidy of HK$1,800. I strongly disagree with this one. It will simply encourage people to use more electricity with consequential environmental costs;

5. wine duty (currently 40%) will be abolished. The last reduction in wine duty was (by and large) not passed on to consumers. If retailers fail to pass on the savings this time I will look into importing my own wine (probably consolidating shipments with friends to reduce the shipping costs). As nice as this is, I would have to drink a lot more wine before this became financially significant.

Other items from the budget of interest to me:

(i) inflation forecast to rise to 4.5% (reduced to 3.4% after measures adopted in the budget). Holding cash and repaying debt remain bad strategies;
(ii) token efforts to address environmental problems. This is very very disappointing;
(iii) more land to be placed on the auction list (some targeted at hotels). Given the number of properties already on the list which developers have not taken up, this is unlikely to result in a major increase in supply of new residential units;
(iv) reduction in corporate profits tax by 1% from 2008/9. This will be good news for the Hong Kong share market (which rose strongly this morning);
(v) no measures to broaden the tax base. If anything, the tax base will narrow further as a result of this budget. This is a political problem and a moral hazard as Hong Kong inches closer to something resembling a token democracy.

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