Hong Kong’s economy is forecast to grow 1-3% this year, after reaching 2.3% growth in 2014, Financial Secretary John Tsang announced today in his annual Budget.
For the medium term, Mr Tsang forecast growth of 3.5% in real terms from 2016 to 2019, with an underlying inflation rate averaging 3%.
On the fiscal front, a $63.8 billion surplus is forecast for 2014-15, with fiscal reserves expected to reach $819.5 billion by the end of March.
The revised revenue estimate for 2014-15 came in at $470.7 billion, 9.4% or $40.6 billion higher than the original.
This was mainly due to:
* $29.7 billion more in stamp duty, over 60% more than the original estimate. Of this, more than 75% came from the “double stamp duty” which was not budgeted;
* $18.5 billion more in profits tax, or 15.8% more than originally estimated; and
* $5.1 billion more in salaries tax and $3.2 billion more in land premium.
Revised government expenditure in 2014-15 was forecast at $397.2 billion, 3.4% or $14 billion lower than the original estimate.
Spending set to rise
For 2015-16, operating expenditure is estimated at $354.3 billion, an increase of 11.5% or $36.6 billion over the revised estimate for 2014-15.
Recurrent expenditure will account for $324.6 billion, more than 90% of the 2015-16 operating expenditure. This is an increase of $18.3 billion or 6% over the 2014-15 revised estimate.
Mr Tsang said almost 60% of recurrent expenditure would go towards the three livelihood-related areas - education, health and social welfare.
Education remains the largest spending area with $71.4 billion earmarked for it, with $54.5 billion set aside for medical and health services and $59.7 billion for welfare.
Capital works spending levels remain high
Mr Tsang forecast capital expenditure of $86.5 billion in 2015-16, including $70 billion on capital works.
Total government expenditure is estimated to reach $440.8 billion in 2015-16, 11% more than last year. Public expenditure will be equivalent to about 20.4% of GDP.
The civil service establishment would grow by 2,540 posts to 176,448 in 2015-16, a 1.5% increase, he said.
Total government revenue for 2015-16 is estimated at $477.6 billion, of which earnings and profits tax is estimated at $194.6 billion. Land revenue is estimated to hit $70 billion.
“Taking all these into account, I forecast a surplus of $36.8 billion in the Consolidated Account in the coming year,” he said, adding fiscal reserves are estimated to be $856.3 billion by the end of March 2016, representing 36.8% of GDP and equivalent to 23 months of government expenditure.
In the medium term, Mr Tsang predicted fiscal reserves of $948.8 billion by the end of March 2020, or 33.6% of GDP and the equivalent of 22 months government expenditure.
Mr Tsang also agreed to establish a Future Fund as a long-term savings scheme for Hong Kong to seek higher investment returns. It was proposed to set up the fund with a $220 billion endowment from the Land Fund to be supplemented by a portion of the budget surplus each year.
He has asked the relevant bodies to sort out details and expects the scheme to be in place within this year.
