Here's why BofAML thinks it's a 'bland budget' for Hong Kong

Government's one-off measures are too safe.

According to Bank of America Merrill Lynch, financial secretary (FS) John Tsang’s first budget speech, under Chief Executive CY Leung’s administration, contained few surprises. 

It also adds that it Hong Kong's Budget 2013 was bland with only few bold initiatives, disappointing those seeking radical, visionary economic policies under the new leadership of CY Leung.

Here's more:

First, the announced relief measures, which were short of last year’s, mostly extended existing concessions.

Second, the government is offering only a 0.25% deficit budget, which in our view, provides a limited boost to GDP. Nevertheless, we welcome the FS’s proposal to provide tax exempt status for private equity funds and are positive on the new infrastructure projects. 

The relief and spending package for FY2013-2014 was broadly in line with our expectations. We expected the government to opt for a basket of relief measures that are all tried and tested in order to avoid causing additional controversy or further narrowing the tax net.

As we anticipated, along with the HK$1,800 electricity subsidy for each household, the package included a waiver of property rates and public housing rents, and the salary tax rebate was cut back to the HK$10,000 ceiling.

There were additional relief measures to assist students and the elderly. The size of the relief package is HK$33 billion, or 1.7% of GDP, but it is much lower than the HK$80 billion giveaways (or 4.2% of GDP) for FY2012-2013.

Bright spot 1: Focus on developing the financial services industry. We welcome the Financial Secretary’s proposal to provide tax exemption status
for private equity funds, thereby enabling them to enjoy the same tax exemption as offshore funds.

Bright spot 2: Additional infrastructure spending. Unlike last year when no additional infrastructure projects were offered, we are positive about the list of new projects, including railway networks, roads, hospitals, reclamation, sports facilities and environmental infrastructure.

Bright spot 3: Better 4Q12 GDP and growth outlook. The economy regained momentum in late 2012 by advancing 2.5% yoy in 4Q12, up from a revised 1.4% yoy growth in 3Q12. For 2012 as a whole, GDP increased by 1.4% yoy over 2011.

All in all, the budget speech contained limited new initiatives, disappointing those seeking radical, visionary economic policies under CY Leung. By once again allowing one-off measures to dominate the annual budget, the new administration risks missing a window of opportunity to push through fiscal reforms in times of anticipated stronger economic growth in 2013.