A leading accounting firm predicts a handsome fiscal surplus of HK$35 billion at the wrap up of the financial year.

PricewaterhouseCoopers (PwC) estimates reserves for the year ending March 31 will be in the neighborhood of HK$630 billion, enough for 20 months of government expenditure.

In view of the robust financial strength, PwC suggested on Monday that the government take account of the needs of the grassroots and middle-class who are facing inflation.

PwC also suggested tackling long-term problems and improving the long-term competitiveness of Hong Kong.

However, the firm opposes another money distribution scheme like the HK$6,000 cash pay-out. The company said money should be used to help the needy.

The firm also expects the government's philosophy of fiscal prudence will remain unchanged, despite the fact that a new administration will take over next July.

Announcing its budget preview ahead of the delivery of the 2012-13 Budget, Marcellus Wong, tax services partner of PwC, on Monday forecast a fiscal surplus of HK$35 billion for 2011-12 fiscal year, against the government's anticipated budget deficit of HK$8.5 billion.

Wong explained that economic activities in the first half of the year were robust until affected by external uncertainties, thus prompting unsatisfactory revenue from major sources, such as properties tax, salaries tax, stamp duties and land premiums.

Another major reason for the estimated deficit, according to Wong, was around HK$38 billion in making provisions for the HK$6,000 scheme.

For example, the government expects to reap HK$62.2 billion from land premiums. But Wong estimated nearly HK$75 billion can be achieved at the end of the fiscal year.

On the other hand, smaller government expenditures are expected, given the fact that fewer people than expected applied for the HK$6,000 during this financial year.

To help people prepare for an economic downturn and inflation, fellow tax services partner K.K. So said the firm suggested raising the salaries tax basic allowance from HK$108,000 to HK$113,400, and widening the progressive tax bands from HK$40,000 to HK$45,000.

PwC also suggested an increase of the dependent parent/grandparent allowance from HK$36,000 to HK$40,000 and the disabled dependent allowance from HK$60,000 to HK$80,000, and the extension of the period of home loan interest deduction from 10 to 15 years.

The government also needs to tackle long-term issues such as the aging population, by pursuing healthcare financing and retirement protection schemes, wage disparity and housing prices, through stable supply of land, he said.

So also asked the government to take steps to enhance Hong Kong's six premier industries, including education, medical services, and also testing and certification services, by way of special funds, matching grants and tax incentives.

joseph@chinadailyhk.com

China Daily

(HK Edition 11/29/2011 page1)