FY 2012-13 budget to inject pain killers into economy

Hong Kong seems to be in for a lot of pain as growth slows by more than half in 2012 and prices continue to rise.

The final budget by the administration of Chief Executive Donald Tsang is expected to focus on abating economic hardship and attenuating the widening income gap that could be the lot of Hong Kong residents until next year.

To be revealed Feb. 1, the FY2012-13 budget will likely focus on offering short-term economic relief, according to financial analysts. There will be concessions, but not a repeat of the 2011 stimulus, and what concessions there will be are expected to be mostly one-off in nature.

The budget will be one “. . . focused on short-term challenges,” said Kelvin Lau, an Economist specialising in Hong Kong and the Pearl River Delta in Southern China for Standard Chartered Bank.

He noted that Hong Kong’s “hefty fiscal windfall in FY12” should allow the government to announce a raft of economic concessions for FY2013.

“Much of the ammunition is likely to be spent on countering economic hardship stemming from slowing growth and the widening income gap, as opposed to tackling inflation,” Lau said.

The government is said to be considering an aggregate assessment of salaries, profits and property taxes subject to a ceiling of HK$8,000 instead of a one-off reduction in salaries tax and tax under personal assessment.

Relief measures currently in place that are likely to be extended include:

1. Paying two months' rent for around 700,000 public housing tenants.
2. Providing an additional month of Comprehensive Social Security Assistance (CSSA) payment, Old Age Allowance and Disability Allowance.
3. Providing a HK$1,800 subsidy to each residential electricity account, benefiting over 2.6 million domestic accounts.
4. Waiving government rates for the whole fiscal year, subject to a ceiling of HK$1,500 per quarter for each rateable property.
5. Raising child/dependent parent/grandparent tax allowances.
6. Introducing a “Guangdong Scheme” to provide an old age allowance for eligible elderly people who reside in Guangdong, without the need to return to Hong Kong.
7. Introducing concessionary MTR/bus/ferry fares for elderly people and eligible people with disabilities.

Analysts expect GDP growth to slow to 5% for 2011 and tumble 70% to 2.9% in 2012.

They said the government is likely to report a sizeable surplus for this fiscal year at HK$70 billion or 4% of GDP. This would be the third-largest surplus in Hong Kong’s history, and close to the second-largest on record, which was achieved in FY2011.

The improvement was due mainly to another year of surprisingly strong land sales and stamp duty receipts. The resulting leeway to provide one-off relief measures should prove timely given that growth is set to slow further in 2012.

FY2011/12 will be the eighth year Hong Kong registered a surplus. This will underpin the government’s aggressive infrastructure investment, which is a key domestic offset to the external driven slowdown.

Also, given the imminent change in top government posts, analysts expect the upcoming budget to be long on one-off concessions and short on new vision.