Surplus of HK$72.7 billion for FY 2015-16 expected from government

Surpassing originally budgeted surplus of HK$36.8 billion.

It has been estimated that the government will report a surplus of HK$72.7 billion for the financial year 2015-16.

According to a release from EY, this will exceed the originally budgeted surplus of HK$36.8 billion. The surplus will however, be reduced to HK$28 billion after the transfer of investment returns of HK$44.7 billion to the Housing Reserve established in 2014.

Based on EY’s figures, the estimated surplus would increase Hong Kong’s fiscal reserves to HK$856.5 billion by the end of 31 March 2016.

Here's more from EY:

Agnes Chan, Managing Partner, Hong Kong and Macau at EY, says: “We estimate that revenue receipts from stamp duties will exceed the original estimate by HK$12 billion. This is primarily due to the rallies in the Hong Kong stock market in the first quarter of the financial year.

Furthermore, as the business and employment environment in Hong Kong has not deteriorated in the current year, we estimate that tax receipts would exceed the conservative estimate made in the original budget by HK$11 billion.

We also estimate that actual government expenditure for this financial year will be HK$18 billion less than budgeted, the shortfall being attributable to the HK$10 billion appropriated for healthcare reform in the original budget but not spent in this financial year and an over-estimation of HK$8 billion as regards other expenditure.”

“However, EY estimates that worries over the global economic outlook and uncertainties associated with the impact of the U.S. interest rate hike would cause revenue receipts from land sales to come in slightly lower than the original estimate by HK$5.1 billion.” Agnes Chan adds.

This year's expected budget surplus would propel Hong Kong’s fiscal reserves to HK$856.5billion as at 31 March 2016, amounting to 36% of Hong Kong’s estimated 2015 gross domestic product (GDP).

Agnes Chan explains: “Given the impact on Hong Kong of the expected interest rate hikes by the U.S. Federal Reserve and the ongoing adjustments in the mainland China’s economy, Hong Kong may be entering a challenging era of slow economic growth.

With Hong Kong having accumulated an enviable level of fiscal reserves of over HK$800 billion, we are confident that these challenges are manageable. While a portion of the fiscal reserves may be reserved to fund counter measures in the event of possible market volatility, EY proposes that near-term relief measures should be introduced to alleviate the tax burdens of individuals and businesses in view of the economic uncertainties ahead.

Furthermore, a portion of the fiscal reserves could be employed to enhance the competitiveness of Hong Kong’s tax system so as to enable businesses to capture opportunities under the “Belt-Road” initiative and create a tax friendly environment to nurture start-up companies in Hong Kong.”