A leading accounting firm suggested tax rebates would be more effective than cash vouchers to stimulate the economy and predicted a budget deficit for this financial year.

Gus Ellis, a tax partner at PricewaterhouseCoopers, said the budget deficit could be in the range of HK$65 billion to HK$72 billion for the fiscal year ending March 31, 2009. The huge deficit would be due to decreased revenue from direct taxes, land premiums, stamp duties and investment income, he said. For the 2009-10 Budget, he envisaged a similar deficit.

However, he said Hong Kong still has some HK$35.5 billion in fiscal reserves, equivalent to 14 months of government expenditure.

In spite of the deficit, he expects the financial secretary will increase government spending to kick-start infrastructure projects and create jobs.

Fellow tax partner Tim Lui proposed tax rebates, instead of issuing cash vouchers, to ease economic woes. From the government's point of view, he said, tax rebates are easier and quicker because the Inland Revenue Department has the details of all taxpayers.

On the other hand, it can be difficult to locate recipients and distribute vouchers, which also require expensive fraud-prevention features.

"People may feel happier to have more cash in their pockets when they receive checks from the government," he said, but noted that some people may save the money rather than spend it.

He also said the government could push back deadlines for payments of provisional salaries tax due in April, involving around HK$800 million. He said this would allow people to keep more money in their pockets while the government loses nothing but interest income.

Government fees and charges such as rates, water and sewage could also be waived in part or in full, he suggested.

To encourage employment, employers could be entitled to 50 percent additional profits tax deduction on salaries for hiring unemployed people for three months or more in 2009, subject to a ceiling of HK$40,000 per month per person, he said.

(HK Edition 12/12/2008 page1)