Taxes cut in Hong Kong budget

HONG KONG yesterday unveiled a budget that risked incurring the envy of Norman Lamont and the wrath of China.

Armed with a huge budget surplus for the current year, minimal unemployment and forecast growth of 5.5 per cent, Hamish Macleod, the Financial Secretary, announced sweeping income tax cuts and higher public spending. He said Hong Kong had every chance of overtaking Britain's GDP per head in the next fiscal year, which begins in April.

Mr Macleod revealed that the budget surplus for the current year, originally set at HKdollars 7.5bn (pounds 670m), had been revised to HKdollars 20.5bn because of higher-than-expected revenues and lower capital spending. The windfall left the end-year reserve balance at nearly HKdollars 120bn.

But he also announced that the next fiscal year would see Hong Kong's first budget deficit - HKdollars 3.4bn - for eight years as a result of a rise in government expenditure from HKdollars 109bn to HKdollars 132.5bn. Social security provisions, an environmental clean-up for Victoria Harbour, and improved road links with China are among the projects to benefit.

Deficit budgets are now planned for the last four years of British colonial rule in order to bring the reserves down to what is considered a more sensible level of HKdollars 78.4bn in 1996-7, when sovereignty is transferred. Although this is about HKdollars 7bn higher than forecast a year ago, China has always been convinced that Britain is trying to remove as much money as possible before the handover, and is likely to protest.

Mr Macleod said nine out of 10 income taxpayers would pay less tax after increases in allowances and widening of some tax bands.