Bloomberg News

Hong Kong May Hand Out $5.2 Billion in Budget Amid Slowdown

January 31, 2012

(Updates with plan to sell inflation-linked bonds, in third paragraph.)

Jan. 31 (Bloomberg) -- Hong Kong Financial Secretary John Tsang may hand out as much as HK$40 billion ($5.2 billion) in his last budget tomorrow, from tax rebates to property-rate waivers, as an economic slowdown starts to bite.

The government may report that gross domestic product shrank 0.3 percent in the fourth quarter from the three months ended September, according to the median estimate in a Bloomberg News survey of six economists. That would compare with a 0.1 percent expansion in the third quarter.

Hong Kong Chief Executive Donald Tsang said last week in Davos that he has “never been as scared” about the global economic outlook, and UBS AG said the city may have a “shallow” recession in the first half. Besides tax rebates for individuals and companies, the government will tomorrow announce the sale of at least HK$10 billion ($1.3 billion) of inflation-linked bonds, a person familiar with the matter said.

“Much of the ammunition is likely to be spent on countering economic hardship stemming from slowing growth and the widening income gap,” said Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong. “We expect the upcoming budget to be long on one-off concessions and short on new vision.”

An estimated HK$72 billion surplus will boost the city’s reserves to a record HK$667 billion, or two years of government expenditure, according to Daiwa. That leaves room for relief measures and stimulus as Europe’s crisis damps exports, growth slows in China and Hong Kong’s government approaches the end of its term on June 30.

Giveaway Estimates

KPMG Tax Ltd. said this year’s budget giveaways, including utility subsidies and tax rebates, will total HK$40.3 billion and Deloitte Touche Tohmatsu predicted HK$39.5 billion. Small and medium-sized businesses will get one-time tax rebates, Sing Tao Daily reported today, without citing anyone.

Hong Kong stocks rose today, pushing the Hang Seng Index to its biggest monthly gain since October after Greek Prime Minister Lucas Papademos said progress had been made in talks with the country’s creditors, easing concern Europe won’t be able to manage its debt crisis. The Hang Seng Index gained 0.5 percent as of 1:56 p.m. local time.

The city’s economy expanded 3 percent in the fourth quarter from a year earlier, the least in two years, according to the median forecast of nine economists in a Bloomberg News survey.

Infrastructure Spending

John Tsang was last year forced to add a cash handout of HK$6,000 for each permanent resident after his original budget proposal drew criticism from lawmakers and led to street protests seeking more aid for workers. Hong Kong is prepared to support growth by boosting expenditure on infrastructure, education and health, Tsang said this week. Last year, he allocated a record HK$58 billion for capital works.

“Hong Kong has plenty of fiscal firepower and this will underpin the government’s aggressive infrastructure investment to offset the external driven slowdown,” said Silvia Liu, an economist at UBS. She said that she doesn’t expect a repeat of last year’s cash handouts.

The government may also offer salary-tax rebates and raise tax allowances for children and medical insurance, according to Yvonne Law, a partner at Deloitte Touche Tohmatsu.

Home prices have slipped 6 percent from a 14-year-high in June and the number of transactions plunged 54 percent in December from a year earlier. In China, the economy grew at the slowest pace in more than two years in the fourth quarter.

Unemployment may climb to 4.4 percent by year’s end from 3.3 percent in the fourth quarter of last year, DBS Group Holdings Ltd estimated. Inflation excluding distortions from temporary government subsidies was 6.4 percent in December, matching the highest level since data began in 2007.

-- With assistance from Fion Li and Michael Munoz in Hong Kong. Editors: Paul Panckhurst, Tan Hwee Ann

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net


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