Handouts in 2015 budget less generous than expected

In line with hefty fiscal surplus.

Hong Kong recorded a provisional surplus of HKD63.8 billion for FY 2014/15. Armed with this hefty fiscal surplus, the Budget included a HKD34.2 billion package of relief measures.

According to a research note from Hang Seng Bank, further, compared with previous budgets, however, the handouts were perhaps less generous than some had expected, representing less than 54% of the fiscal surplus, compared with an average of 69% over the past five years.

The official rhetoric is indicating a greater tolerance for the idea of a cyclical slowdown and we would not be surprised to see a tightening up of relief measures in the next few fiscal years.

Here's more from Hang Seng Bank:

The priorities of this Budget have expanded beyond addressing immediate social concerns, and there was a clear focus on boosting workforce skills and innovation.

The government has also taken a bold move in choosing to reduce profits tax for specified treasury activities by 50%. In general, decisions as to where to set up a treasury centre are significantly influenced by tax-related considerations.

This is particularly true in deciding between Hong Kong and Singapore, which both offer a sophisticated financial infrastructure and a skilled workforce. The new measure will halve the effective tax rate for
treasurers in Hong Kong to 8.25%, giving the city a distinct competitive edge over Singapore as a regional treasury centre.

Two features of the Budget capture our immediate attention. First, the Financial Secretary communicated the government’s desire to expand the labour force as a tool for boosting long-term economic growth.

Second, Mr Tsang seems to have put less emphasis on removing supply side bottlenecks via infrastructure improvement. That could reflect the government’s stance on ‘smart consolidation’ and a shift of fiscal resources towards other growth- enhancing policies.