Short-term measures seen as insufficient for economic recovery

HONG KONG: With the jobless rate in the city remaining high at 4.9 percent during the three months ended January, many in Hong Kong - including the business community - believe the government should extend some relief measures, given the uncertainty of the outlook for the local economy.

In a recent survey conducted by the Democratic Alliance for the Betterment and Progress of Hong Kong, 44 percent of respondents expect the government to dole out some goodies such as tax relief. Only 16 percent of those surveyed prefer the government to keep any fiscal surplus in the treasury for future use.

Many business organizations also support the idea of extending some relief measures this year, given that the government has handed out HK$87.6 billion since February 2008 in its relief package.

"With the outlook for the external economic environment remaining cloudy and the internal economy remaining unstable, local enterprises and residents are still very much in need of continued government support to help them get out of the woods," the Chinese Manufacturers' Association of Hong Kong said in a statement.

It advises the government to extend the freeze on various government fees and charges for another year to March 2011.

ACCA Hong Kong, the local arm of the Association of Chartered Certified Accountants, meanwhile, suggests that the government return last year's surplus to the community in the form of tax rebates and rates waivers.

"This (the surplus) should go back to the community in general. The first thing to do is to give back some of them, not all, to taxpayers who paid taxes; then the remaining will be shared by the rest of the community, especially those who need help," Fergus Wong, chairman of the tax committee at the accountancy group, told media on Monday.

The much-better-than-expected financial position of the government in fiscal year 2009-10 also supports suggestions for further welfare handouts in the new fiscal year.

The government is now widely expected to post a surplus in the fiscal year ending March 31. It previously forecast a fiscal deficit of HK$39.9 billion.

Besides the short-term relief measures, many business leaders and experts believe long-term strategies are needed to help boost the city's competitiveness and build a more equitable society in terms of wealth distributions.

"Handing out some goodies may be justifiable in the wake of strong expectations from society. But one-off sweeteners won't help much. The government should instead come out with some long-term measures," said Ho Lok-sang, professor of economics and director of the Centre for Public Policy Studies at Lingnan University.

While the short-term measures may help a bit, a fundamental solution to ease income disparities lies in a stronger and more competitive economy that will generate more jobs, business leaders opine.

"I hope the government will unveil some substantial measures to develop the six new industries," Albert Lau, vice-chairman of Hong Kong Small & Medium Enterprises General Association (HKSMEGA) said.

In his policy address delivered last October, Chief Executive Donald Tsang unveiled new incentives to nurture six new industries, namely, testing and certification, medical services, innovation and technology, culture and creative industries, environmental industry and education services. The aim is to broaden Hong Kong's economic structure.

"We need to explore opportunities to diversify our economy and develop new industries for the future," Florence Chan, Convener of the budget proposals sub-committee at Hong Kong Institute of CPAs, said in a statement.

The institute also suggests a reduction in the corporate profits tax rate from 16.5 percent to 16 percent, and to 15 percent over the longer term, in order to boost the competitiveness of the city and attract more overseas firms to set up regional headquarters here.

It notes that regional competitors such as Singapore have drastically dropped their tax rates over the past decade.

Meanwhile, the Chinese Manufacturers' Association says another effective way to help ease income disparities is to support the growth of small and medium enterprises that employ many people with lower levels of education.

It suggests the government extend the deadline of the Special Loan Guarantee Scheme, which has helped companies secure loans from banks during the global financial crisis, with the government acting as the guarantor.

(HK Edition 02/24/2010 page2)