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FS unveils tax cuts, concessions in Budget

    The Financial Secretary, Mr John C Tsang, today (February 27) unveiled a package of initiatives and concessions to help the disadvantaged, enhance Hong Kong's competitiveness and ensure sustainable development.

    "I hope that this Budget will lessen people's burden and help them handle their various challenges," Mr Tsang told the Legislative Council while delivering his first budget.

    The Financial Secretary forecast a record budget surplus in the Consolidated Account of $115.6 billion and a surplus of $63.7 billion in the Operating Account for 2007-08.

    He proposed a variety of measures to return the wealth to the people, including a one-off tax reduction of 75 per cent of salaries tax and tax under personal assessment for the 2007-08 fiscal year, up to a maximum of $25,000.

    "This proposal will cost the Government $12.4 billion in 2008-09 and benefit 1.4 million taxpayers," Mr Tsang said. "After the reduction, about a million taxpayers will pay no more than $5,000 in tax."

    Mr Tsang also proposed raising the basic allowance and the single parent allowance from $100,000 to $108,000 as well as increasing the married person's allowance from $200,000 to $216,000.

    "Upon implementation of the proposals, all the major allowances and tax rates will have reverted to their 2002-03 levels," Mr Tsang said.

    He also proposed widening the tax bands from $35,000 to $40,000. The proposal will cost the Government $1 billion annually.

    The standard rate of salaries tax and personal assessment tax will be lowered by one percentage point from 16 per cent to 15 per cent from the next fiscal year and profits tax will be lowered from 17.5 per cent to 16.5 per cent. This will cost $960 million and $4.4 billon a year respectively.

    Small and medium-sized businesses are also in line for a one-off tax reduction with the Financial Secretary proposing a concession of 75 per cent of profits tax for 2007-08, up to a maximum of $25,000.

    The proposal will benefit all 100 000 companies liable to profits tax and cost the Government $1.73 billion.

    Business registration fees will also be waived for 2008-09.

    Mr Tsang said the Research and Development sector was a key area for promoting high value-added economic activities.

    He proposed a one-off grant of $18 billion to set up a Research Endowment Fund to replace the existing annual funding grant to the Research Grant Council of the University Grants Committee.

    Additionally, he proposed providing 800 additional publicly-funded places for postgraduate research programmes in phases starting from the 2009-10 school year.

    To help lower-paid people plan for their retirement, he proposed a one-off injection of $6,000 into Mandatory Provident Fund (MPF) accounts of those employees and self-employed persons earning no more than $10,000 a month. This would cost $8.5 billion.

    "The impact of these measures will be felt in the medium to long term and will not have any short term economic impact," Mr Tsang said.

    "The other measures will benefit our citizens at different times of the year. The effects of some may only appear at the beginning of 2009," he added.

    "Therefore, these measures will not generate a lot of domestic demand in a short period of time. The stimulating effect on inflation should be limited."

    The Financial Secretary placed healthcare reform as a priority in achieving fiscal sustainability, adding that an ageing population posed a huge challenge for the city which he said would be home to some 2.17 million elderly people by 2033.

    He reiterated the Government's commitment to increase the share of health care expenditure to 17 per cent of its recurrent expenditure by 2012. And he pledged to draw $50 billion from the fiscal reserves to assist the implementation of health care reform.

    On the environment, Mr Tsang proposed a reduction of 30, 50 or 100 per cent in the First Registration Tax of commercial vehicles meeting Euro V emissions standards. 

    To encourage businesses to use cleaner production techniques, Mr Tsang also proposed a 100 per cent profits tax deduction for capital expenditure on environment-friendly machinery and equipment in the first year of purchase.

    Duties on wine, beer and all other alcoholic beverages except spirits will be exempt to help promote Hong Kong as a trade and distribution centre for quality wine in Asia.

    "It is expected that by developing the various businesses in Hong Kong relating to quality table wine, our total business volume in trading, storage and auction of table wine may increase by as much as $4 billion," Mr Tsang said. 

    In keeping with the principle of commitment to society, the Financial Secretary earmarked $53 million to tackle the problem of psychotropic drug abuse by young people.

    Another $40 million will go toward assisting victims of domestic abuse.

    To ensure more affordable medication for the less well off, Mr Tsang proposed setting aside $1 billion for the Samaritan Fund to include more new medicines in the subsidy list.

    CSSA and Disability Allowance recipients will get an extra one-month payment under the budget proposals. And low-income families will benefit from a proposed one-month rent waiver for public housing tenants. 

    "As for rates, I propose to waive rates for 2008-09, subject to a ceiling of $5,000 per quarter for each rateable tenement," Mr Tsang said.

    "It is estimated that 99 per cent of domestic properties and 85 per cent of non-domestic properties will be subject to no rates in the year. This proposal will cost the Government $11.2 billion."

    An additional measure to help ease inflationary pressure is a proposed electricity subsidy grant of $1,800 for each domestic electricity account.

    It is estimated that this will cover the annual electricity bills for about 15 per cent of households, and will cost the government about $4.3 billion.

    An additional $1 billion has been earmarked for elderly people who need to carry out maintenance or safety improvement works for their self-occupied properties in the next five years, up to a maximum of $40,000 per person. This proposal will benefit 30,000 elderly people.

    On sharing the fruits of Hong Kong's economic recovery with the elderly, Mr Tsang proposed providing Old Age Allowance recipients with a one-off grant of $3,000, at a cost of $1.5 billion to the government.

    "Based on the revenue, expenditure and other proposals set out in the Budget, I forecast a deficit of $6.3 billion in the Operating Account and a deficit of $7.5 billion in the Consolidated Account for 2008-09," Mr Tsang said.

    He added that public expenditure, as a proportion of GDP, would increase from 15.9 per cent in 2007-08 to 19.2 per cent in 2008-09.

    Mr Tsang predicted that a surplus would occur again starting from 2009-10 and that the operating surplus would build up to $67.3 billion in 2012-13.

    "As the measures proposed in this Budget are mostly one-off or time-limited, they will not have significant implications for future public finances," Mr Tsang said. 

    "They will not lead to structural fiscal deficits and are therefore in line with the principle of sustainability."

Ends/Wednesday, February 27, 2008
Issued at HKT 13:10


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