Favorable fiscal outcome for FY2014/15 expected ahead of 2015 Budget announcement

There was solid performance and low unemployment.

Hong Kong Financial Secretary John Tsang will unveil the 2015 Budget on 25 February, and ahead of that announcement, Hang Seng Bank noted that it expects the fiscal outcome for FY2014/15 to again be a surprise on the upside.

According to a research note from Hang Seng Bank, the solid performance of listed companies and low unemployment rate over the past financial year has supported strong direct tax collections.

Further, salaries and profits tax could reach HKD180 billion for FY2014/15. On the expenditure side, underspending is likely to be marked.

All things considered, Hang Seng Bank said it expects the budget surplus to come in at about HKD42.3 billion for FY2014/15, compared to the government’s HKD9.1 billion estimate.

Here's more from Hang Seng Bank:

However, the fact that the fiscal account is currently ahead of forecast does not necessarily mean the government has more room to maneuver.

The upcoming Budget is more likely to involve a reprioritisation of spending than a large shift in the overall fiscal stance.

The odds of a tightening up of relief measures have significantly increased given the more benign inflation outlook.

While last year’s Budget was generous to the older generation, this year’s Budget will likely target the working-age population.

It is likely to include a variety of sticks and carrots to encourage higher labour force participation, nurture skills development and increase workforce mobility.

The child allowance is expected to rise. This should give a small boost to GDP, but not really enough to warrant major changes in growth forecasts.

By our estimate, the giveaway will cost around HKD500 million, translating into less than 0.1% of GDP.

The government will also release GDP data for the fourth quarter of last year. Burdened by the rapidly growing trade deficit, fourth-quarter 2014 GDP growth is expected to be about 1.6%, down sharply from the 2.7% growth recorded in the third quarter.