HK finance chief unveils big pre-election tax cuts

Hong Kong's finance chief unveiled a pre-election spending spree budget yesterday, handing out billions of dollars in tax cuts and one-off rebates paid for by a booming economy.

The top-rate income tax band, already among the lowest in the world, was slashed from 19 percent to 17 percent and this year's tax demands will be cut in half.

But while the ordinary man on the street will benefit from the budget cuts, critics said the HK$250 billion (US$32 billion) plan ignored the business community and economic development.

They said it was significant that a raft of populist measures should be unveiled just weeks before Chief Executive Donald Tsang (曾蔭權) stands for re-election as the city's political leader.

In his fourth budget speech as financial secretary, Henry Tang (唐英年) said he would dole out HK$20 billion in tax concessions to the city's middle classes.

As well as lowering the tax bands, there will be a 25 percent increase in tax relief for families and better relief on education fees.

And in a move that will have the hard-partying city saying cheers, duty on booze will be halved.

Tang said the giveaways were possible thanks to a bumper year in which the government raised almost HK$40 billion in surpluses.

"Government revenue is far higher than expected, due to the strengthening economy, increased corporate profits and salaries, the buoyant stock market and a stable property market," Tang said in his hour-long address to legislators.

Central among Tang's plans is a lowering of the tax bands to 2002-2003 levels combined with a one-off end-of-year 50 percent cut in tax bills for last year up to HK$15,000, a move that will cost the government HK$8 billion.

The bottom-rung tax threshold will also be lifted 15 percent from HK$30,000 to HK$35,000.

Corporate profit taxes will remain at 17.5 percent.

This way, Tsang said only HK$5 billion would be committed to recurrent spending.

In other concessions, property rates will be cut, with a waiver on payments for the first six months of the fiscal year, beginning in April.

Duty on alcohol, long a bug bear of the city's huge hospitality industry will be cut from 80 percent on wine to 40 percent and from 40 percent on beer to 20 percent.

"I believe that reducing the duty on alcoholic beverages will help promote the development of our catering industry, tourism and wholesale and retail alcoholic beverage trade, thereby benefiting the community at large," he said.