Budget that's right for Hong Kong (12 March2007)

Financial secretaries delivering their budget speeches in Hong Kong have too often appeared like stern mothers addressing unruly children - whom they love dearly but don't trust to look after themselves or be sensible with money. So what an extremely pleasant surprise it was to be addressed like intelligent, responsible grown-ups by Henry Tang Ying-yen on February 28.

The budget speech was by far the most impressive and creative since the 1997 handover. It was a concise, practical and imaginative address that recognised our economic strength today and sought ways to share wealth in a manner that would create even greater prosperity.

Some critics in the pan-democratic camp attribute the financial secretary's apparent largesse to an effort to create a warm and fuzzy atmosphere ahead of the chief executive election. While it was certainly a feel-good budget, such accusations are unfounded and ignore Hong Kong's fiscal reality. The government's surplus for the 2006-2007 financial year has been projected at a staggering HK$55.1 billion. There is clearly wealth to be shared with the community.

We told the financial secretary last year that we hoped to see an easing of the tax burden on the middle classes, which creates much of Hong Kong's wealth but receives little of its welfare relief. So we welcome the waiving of up to 50 per cent of salaries tax, the reverting of marginal tax rates and tax bands to their 2002-2003 levels, and the waiving of rates for the first two quarters of the next financial year.

The budget also showed concern for those in need, allocating some HK$900 million to help the disadvantaged through education, medical treatment and elderly care, along with an additional month's payment for recipients of Comprehensive Social Security Assistance, old age and disability allowances.

One of its few flaws was that the budget did not go far enough in cutting the standard salary tax rate back to the 2002-2003 level. We also believe there was room to reduce the rates charge from 5 per cent to 4.5 per cent; and to consider reducing profits tax to the 2002-2003 level of 16 per cent. These are measures that we hope the government will consider ahead of next year's budget. We hope it will also keep a close eye on the effect of the reduction in duty on wine from 80 per cent to 40 per cent, a move we support strongly.

We hope this will lead to the total abolition of duty on wine. We believe abolition would have broad benefits for our tourism and catering industry, and our economy as a whole. We would also like to see a more rapid provision of incentives to replace diesel commercial vehicles, for the good of our environment, and further measures to help the most disadvantaged.

We welcome the revision of the income sharing arrangement between our fiscal reserves and the Exchange Fund. However, we would like to see our Exchange Fund's investment strategies changed to maximise our returns, which lag far behind Singapore's annual average of 9 per cent.

These, however, are matters for tomorrow. Today, we applaud a bold budget that has laid the foundations for continuing prosperity by giving some wealth back to the wealth creators and to those in need. It is a feel-good budget that feels instinctively right, and has the potential to do a power of good at all levels of society.