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Hong Kong's economy grew by 2.3 per cent in 2014 and is forecast to grow by 1 to 3 per cent in 2015, the Financial Secretary, Mr John C Tsang, announced today (February 25) in his annual Budget.
Merchandise exports grew by 1 per cent with service exports growing by 0.5 per cent in real terms in 2014.
Unemployment averaged 3.2 per cent for the year as a whole, sustaining a state of full employment.
Headline inflation eased to 4.4 per cent. Netting out the effects of the Government's one-off relief measures, the underlying inflation rate was 3.5 per cent in 2014, lower than the 4 per cent in 2013.
The Financial Secretary forecast headline inflation of 3.5 per cent for 2015 as whole, with an underlying inflation rate of 3 per cent.
Mr Tsang predicted challenging times in 2015. An improving US economy and possible interest rate rises in the US will be countered by further easing measures in Europe and Japan.
Lower oil prices would help Hong Kong but excessive oil price volatility could pose a real threat to the global economy and financial markets, he said.
Mr Tsang said the Mainland's economic growth was relatively stable but faced downward pressure this year.
"The global economy as a whole is likely to stay on a slow-growing path in the post-financial tsunami period. This, amid a stronger US dollar, will continue to put a drag on Hong Kong's trade performance," he said.
For the medium term, Mr Tsang forecast growth of 3.5 per cent in real terms from 2016 to 2019, with an underlying inflation rate averaging at 3 per cent.
On the fiscal front, a surplus of $63.8 billion is forecast for 2014-15, with fiscal reserves expected to reach $819.5 billion by end-March 2015.
On revenue, the revised estimate for 2014-15 came in at $470.7 billion, 9.4 per cent or $40.6 billion higher than the original estimate.
This was mainly due to:
* $29.7 billion more in stamp duty, over 60 per cent more than the original estimate. Of this, more than 75 per cent came from the "double stamp duty" which was not budgeted;
* $18.5 billion more in profits tax, or 15.8 per cent more than originally estimated; and
* $5.1 billion more in salaries tax and $3.2 billion more in land premium.
Revised government expenditure in 2014-15 was forecast at $397.2 billion, 3.4 per cent or $14 billion lower than the original estimate.
For 2015-16, operating expenditure is estimated at $354.3 billion, an increase of 11.5 per cent or $36.6 billion over the revised estimate for 2014-15.
Recurrent expenditure will account for $324.6 billion, or over 90 per cent of the 2015-16 operating expenditure. This is an increase of $18.3 billion or 6 per cent over the 2014-15 revised estimate.
Mr Tsang said almost 60 per cent of recurrent expenditure would go towards the three major livelihood-related policy areas of education, health and social welfare.
Education remains the largest spending area with $71.4 billion, with $54.5 billion set aside for medical and health services and $59.7 billion for welfare.
Major spending items include:
* $475 million a year to progressively increase the intake of senior-year undergraduate places in University Grants Committee-funded institutions from 4 000 to 5 000 per annum;
* $328 million to increasing the ratio of graduate teacher posts in public sector primary schools in phases;
* $840 million over two school years to increase the voucher value of the Pre-primary Education Voucher Scheme by $2,500 in the 2014/15 school year, and another $2,500 in the 2015/16 school year, and raising the fee remission ceiling of the Kindergarten and Child Care Centre Fee Remission Scheme;
* Enhanced public health-care services, 250 additional hospital beds, expanded capacity of specialist out-patient clinics and general out-patient clinics, strengthened geriatric rehabilitation and outreach services, and increased operating theatre sessions;
* Extending the Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities to green minibuses in phases from late March 2015;
*$71 million extra per annum for additional places for day care and residential care for the elderly, and for improving relevant services; and
* $160 million extra per annum to strengthen support services for persons with disabilities and ex-mentally ill persons, including residential care services and community support services.
Mr Tsang forecast capital expenditure of $86.5 billion in 2015-16, including $70 billion on capital works.
"With a number of projects entering their construction peaks, capital works expenditure is expected to maintain at relatively high levels in the next few years," he said.
"We are, however, concerned about the sluggish progress of deliberation in LegCo since the last session. This has resulted in the mounting of backlog of funding proposals."
Total government expenditure is estimated to reach $440.8 billion in 2015-16, 11 per cent more than last year. Public expenditure will be equivalent to about 20.4 per cent of GDP.
Mr Tsang said the civil service establishment would grow by 2 540 posts to 176 448 in 2015-16, representing a year-on-year increase of 1.5 per cent, to implement new policies and improve existing services.
Total government revenue for 2015-16 is estimated at $477.6 billion, of which earnings and profits tax is estimated at $194.6 billion. Land revenue is estimated to hit $70 billion.
"Taking all these into account, I forecast a surplus of $36.8 billion in the Consolidated Account in the coming year," he said.
"Fiscal reserves are estimated to be $856.3 billion by the end of March 2016, representing 36.8 per cent of GDP and equivalent to 23 months of government expenditure."
In the medium term, Mr Tsang predicted fiscal reserves of $948.8 billion by end-March 2020, or 33.6 per cent of GDP and the equivalent of 22 months government expenditure.
Mr Tsang said that from 2015-16, government bureaux would help enhance efficiency under the "0 1 1" envelope savings programme to reduce operating expenditure by 2 per cent over the next three financial years. This would encourage government bureaux to reprioritise their services. Resources saved would be used to fund new services.
Mr Tsang agreed with the suggestion in late 2014 of the Working Group of Long-Term Fiscal Planning to establish a Future Fund as long-term savings scheme for Hong Kong to seek higher investment returns.
The Working Group suggested setting up the Fund with an endowment from the Land Fund to be supplemented by a portion of fiscal surplus each year.
"I have requested the Secretary for Financial Services and the Treasury to work with the Chief Executive of the Hong Kong Monetary Authority to hammer out specific management and investment mechanisms. The savings scheme is expected to be in place within this year," he said.
Ends/Wednesday, February 25, 2015
Issued at HKT 12:35
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