Ernst & Young Estimates a Fiscal Surplus of HK$53 Billion – HK$58 Billion for 2011/12
The financial results for the eight months ended 30 November 2011 released by the government showed a surplus of HK$21.2 billion.
This is the second highest level of budget surplus for the first 8 months achieved in the past 10 years. In the last 4 months of a fiscal year, the government would, on average, generate a surplus of approximately HK$35 billion due to the fact that the months of December and January are periods of peak tax collection.
Ernst & Young now estimates that the budget surplus for 2011/12 will be HK$53 – HK$58 billion. Record income from land sales and additional stamp duty collected in the first half of 2011/12 from an active property market and stock transactions are major additional revenue contributors.
This together with a level of expenditure likely to be lower than that originally estimated will convert the originally budgeted deficit of HK$8.5 billion to the large fiscal surplus now estimated for the year.
This year’s expected budget surplus will propel Hong Kong’s fiscal reserves to a level of between HK$648.4 billion and HK$653.4 billion by the end of 31 March 2012, amounting to 35.4% to 35.7% of Hong Kong’s estimated 2011 gross domestic product (GDP).
Adding this level of fiscal reserves to the net accumulated surplus on the Exchange Fund amounting to HK$567.9 billion as at 31 December 2011 (net of the amount required for a 100% backing of the Hong Kong currency) will result in Hong Kong’s effective free fiscal reserves totalling around HK$1.2 trillion. Such a figure will represent 66.6% of the GDP of Hong Kong or approximately 39 months of government expenditure.
Given the global economic uncertainties facing Hong Kong in 2012, Ernst & Young proposes that the government should consider using Hong Kong’s large fiscal reserves to offer more generous relief measures to both businesses and individuals.
In this regard, Ernst & Young proposes to further enhance the one-off relief measures it suggested in late November to relieve the tax burdens and economic hardships of individuals and businesses, in particular small and medium enterprises.
These measures include: (i) granting a tax rebate of 75% of salaries tax and tax under personal assessment for 2011/12, subject to a cap of HK$10,000 (raised from Ernst & Young’s previous proposal of HK$6,000); (ii) waiving rates for 2012/13, subject to a ceiling of HK$2,000 (raised from Ernst & Young’s previous proposal of HK$1,500) per quarter for each rateable unit; and (iii) granting each residential electricity account a subsidy of HK$1,800.
It is estimated that the above proposed measures will cost the government about HK$25.5 billion in revenue forgone.
More specifically for businesses, Ernst & Young proposes (i) waiving business registration fees for a year; (ii) waiving business licence fees for a year in respect of those sectors that are more vulnerable in an economic downturn, e.g., travel, catering and entertainment; (iii) reducing sewage charges and trade effluent surcharges for a year; and (iv) providing a 20% rental concession for government properties and short term tenancies of government land for the first 6 months of 2012/13.
It is estimated that the above proposed measures will cost the government HK$4 billion in revenue forgone.