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Global economic uncertainty will see Hong Kong's economic growth slow to just 1 to 2 per cent in 2016, the Financial Secretary, Mr John C Tsang, said today (February 24) in the 2016-17 Budget.
The uncertain pace of US interest rate normalisation, heightened financial market volatility, modest and patchy growth in advanced economies, weak growth in emerging markets, a slowdown in inbound tourism and subdued exports will all impact on growth prospects, he noted.
Mr Tsang said Hong Kong's economy grew by 2.4 per cent in 2015, the fourth consecutive year that annual Gross Domestic Product (GDP) growth had been below the 10-year average of 3.4 per cent.
Underlying inflation was 2.5 per cent for 2015 - the fourth consecutive year of easing. It is expected to taper further to 2 per cent in 2016 due to soft import prices and easing in local cost pressures.
Unemployment averaged 3.3 per cent in 2015 but a recent slowdown in sectors relating to inbound tourism was cause for concern, he said, noting that tourist arrivals dropped by 8 per cent in the fourth quarter of 2015 and that the volume of retail sales had registered its first annual decrease since 2009.
On the fiscal front, the Government has forecast a surplus of $30 billion in 2015-16 and expects fiscal reserves of $860 billion by March 31, 2016, equivalent to 24 months of government expenditure.
Total revenue for 2015-16 was $457 billion, 4.2 per cent or $20 billion lower than the original estimate. This was mainly due to a $45 billion allocation from investment returns to top up the Housing Reserve to $74 billion, and changes in different income.
Revenues from salaries tax and profits tax came in at 8.9 per cent or $17 billion higher than the original estimate, with stamp duty 28 per cent or $14 billion higher. Land sale revenues were 11.6 per cent or $8 billion lower than the original estimate because some sites were unable to be disposed of as scheduled.
The revised expenditure estimate was $427 billion, 3.1 per cent or $14 billion lower than the original estimate. This is mainly because the Finance Committee may not be able to complete deliberations in 2015-16 on a proposed $10 billion endowment to the Hospital Authority for public-private partnership initiatives.
For 2016-17, the Financial Secretary estimated total government expenditure of $490 billion, comprising $380 billion in operating expenditure and $110 billion in capital expenditure, of which $79 billion is for capital works. Public expenditure will be equivalent to 21.2 per cent of GDP.
Total government revenue for 2016-17 is estimated to be $500 billion, of which earnings and profits tax is estimated at $206 billion. Land revenue is estimated to be $67 billion.
A surplus of $11 billion in the Consolidated Account is forecast for 2016-17, with fiscal reserves estimated at $870 billion by the end of March 2017, the equivalent of 21 months of government expenditure.
The Financial Secretary forecast medium-term GDP growth of 3 per cent per annum in real terms and underlying inflation of 2.5 per cent per annum from 2017 to 2020.
"I forecast an annual surplus in the Operating Account and an annual deficit in the Capital Account in the four financial years from 2017-18," he said.
"There will be deficit in the Consolidated Account in 2018-19 and 2019-20, which mainly reflects the Government's financial allocation for the healthcare reform and retirement protection.
"On the whole, the financial position of Government over the medium term remains sound."
Fiscal reserves are estimated to reach $835 billion by end-March 2021, the equivalent of 18 months of government expenditure.
Mr Tsang said that Hong Kong's fiscal reserves are the mainstay of the economy and help ensure the stability of the Hong Kong dollar and withstand challenges of economic cycles and an ageing society.
However, they do not take into account commitments such as $300 billion for ongoing works projects and $800 billion for statutory pension.
"To maintain the health of our public finances and enable us to cope with possible threats, we must exercise fiscal prudence and live within our means," he said.
"To tackle the problems that come with an anticipated structural deficit, I have established the Future Fund to set aside part of our fiscal reserves for long-term investments when we can still afford to do so.
"I have instructed the HKMA (Hong Kong Monetary Authority) to allocate $220 billion from the balance of the Land Fund, which is part of the fiscal reserves, as an initial endowment of the Future Fund, and to inject one-third of the actual surplus in 2015-16 into the Future Fund.
"The HKMA will deploy half of the Future Fund for incremental placement with the Exchange Fund's Long-Term Growth Portfolio to achieve greater returns."
Mr Tsang said that in preparing the Budget, he had been particularly mindful of Hong Kong's long-term needs.
This includes setting up the Housing Reserve to support public housing development, setting aside $200 billion for the 10-year hospital development plan, and the establishment of the Future Fund as part of a long-term investment strategy.
Ends/Wednesday, February 24, 2016
Issued at HKT 12:57
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