Cautious approach misses the boat (25 February 2006)

Four days ago, many of us were looking forward to the financial secretary's budget with a sense of expectation and optimism. We in the Liberal Party believe that Henry Tang Ying-yen had a golden opportunity to put the wind in the sails of Hong Kong's recovery with a progressive and imaginative fiscal programme.

Today, however, our overwhelming feeling is one of anticlimax. Our view is that in Wednesday's speech, opportunity was dashed on the rocks of unnecessarily excessive prudence, and there can be no hiding the feeling that Mr Tang could have done better.

It is disappointing that the budget did not restore salaries tax to 2002-2003 levels to give the middle class the relief that is long overdue. Instead, we saw? reductions in three marginal tax rates that will do precious little to spur consumer spending and generate a feel-good factor among overburdened,? middle-class taxpayers.

He could have done better in estimating the budget surplus. Mr Tang produced a hugely conservative revised estimate of $4.1 billion at the end of the current financial year, when some analysts have predicted the surplus may be as high as $29 billion.

He could have done better on mortgage tax relief, which was extended only from seven to 10 years when we argued that the government should make the exemption period permanent.

Mr Tang did not respond to our appeal for property rates to be reduced by 0.5 percentage points, from 5 per cent to 4.5 per cent. Even by the financial secretary's own conservative estimate that rateable values increased by an average of 9.2 per cent - and we believe the rises could be as high as 13 per cent - a 0.5 per cent reduction would not have led to any loss in government revenue.

In the speech, Hong Kong was put firmly on the path to a sales tax, a move which we believe is at odds with our city's image as a shoppers' paradise and with its low and simple taxation system. We will use the nine-month consultation to raise tough questions about this proposed tax, and we will do our best to make sure that if it is inevitable, it does as little damage as possible to our city's hard-earned reputation.

Mr Tang could have done better on air pollution. We heard about moves to control the use of plastic bags and to encourage the use of hybrid vehicles. But we must take steps to control the problems of air pollution and electricity-generating factories.

There are many areas of the budget in which we feel Mr Tang could and should have done better. One aspect we can take heart from, however, is the help extended to the disadvantaged in society. Although some critics say the funding is not enough, we consider it a significant step forward.

This was a budget that fell short of expectations and failed to catch the wave of Hong Kong's new dynamism. We can only hope that next February, a few months ahead of the chief executive election, we will get the budget that the people of Hong Kong want and deserve, to drive our recovery forward.