HONG KONG: The government is likely to announce a budget surplus for the year ending March 31, 2010, the leading accounting firm Pricewaterhouse Coopers (PwC) predicts. The forecast runs counter to earlier analysts' predictions of a small deficit to balanced year-end accounts.

The government has reduced the original forecast deficit from HK$39.9 billion to HK$1.2 billion, thanks to the surplus of HK$37.7 billion in December.

"We expect a modest deficit of around HK$5 billion may be announced on budget day," said Tim Lui, tax partner at PwC. However, it is likely to forecast a HK$8.8 billion surplus when the government collects all the actual figures including land revenue, around HK$21 billion in total.

In line with past practice, Financial Secretary John Tsang will take a more prudent, if not conservative, tone in his budget speech on February 24, Lui suggested.

Given a reserve level of around HK$500 billion, the equivalent of 21 months of government expenditure, he believes Hong Kong is in "a healthy fiscal position" as government reserve has outweighed expenditures for more than 10 years and the trend is expected to continue.

PwC estimated the government would probably repeat previous relief measures in helping the underprivileged, including salary tax rebates and several one-off waivers. Nonetheless, the public should not expect "surprises" from the budget, noted Guy Ellis, another PwC tax partner.

"We expect the government will focus on one-off measures rather than ones that will be a long-term drain on government revenues, given the uncertainties and pressures that lie ahead for the Hong Kong economy," Lui commented.

For the benefit of individual taxpayers, the firm proposed a repeat tax rebate of 50 percent of income tax subject to a ceiling of HK$6,000 and a 5 percent increase in some allowances including child, dependent parent/grandparent, single parent, and disabled dependent allowances.

To encourage people to buy property, the firm proposed reducing the stamp duty rate on transactions of properties with a value between HK$2 million and HK$3 million from 1.5 percent to a fixed amount of HK$100.

To assist the unemployed and other low-income earners, PwC proposes additional retraining expenditures and travel allowances, together with additional social security allowances, old age allowances and disability allowances. More nursing and care homes and other support for the sick and the elderly are also expected.

The firm predicts the profits tax rate will remain unchanged in the coming financial year, as Hong Kong profits tax is relatively low compared to other countries, Lui said.

In line with proposals for developing six industries highlighted in the chief executive's 2009 Policy Address delivered in October, the firm foresees the government unveiling measures to facilitate those six industries. The industries are product testing and certification, innovation and technology, medical services, education, environment protection and cultural and creative industries.

As the safety of older buildings poses threats to Hong Kong people, the government is likely to assign an additional HK$0.3 billion fund for repair and maintenance or renovation of old buildings.

The firm also said Hong Kong will face another budget deficit next year with bigger spending on numerous infrastructural projects. "Provided there will be no recession in the future, there won't be a problem for the government to keep a balanced fiscal account," Lui reckoned.

(HK Edition 02/09/2010 page1)