While the US is setting the monetary policy in Hong Kong, that policy is nothing like monetary policy it sets in the US. Online Store In fact, the Taiwanese government, in the light of a worsening global environment, has introduced an Infrastructure Development Program as well as an energy reform plan to introduce renewables, thereby stimulating investment. A strong fiscal position, which allows for a credible counter-cyclical fiscal policy, a well-supervised financial system, and flexible domestic markets have underpinned the Linked Exchange Rate System (LERS), which in turn provides a robust policy anchor. About Google+, Facebook Here, we take a look at the highlights of the 2020-2021 budget that will take effect at the start of Hong Kong’s fiscal year in April. Cutting the individual income tax will increase household disposable income, the income households have available to spend after they have paid their taxes, and consumption spending. Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. And that helps keep our compliance and enforcement costs low. Hong Kong has a simple tax system built on low tax rates. The financial policy framework in Hong Kong empha-sizes the importance of limiting the degree of leverage on the balance sheets of both the private and public sectors so that households, firms, and the government can weather financial cycles. The government must not increase taxes. On the other hand, while ratable properties will receive modest tax waivers, Chan left the red-hot property market largely out of the FY 2018 budget, choosing instead to highlight rising interest rates and the market’s risk of overheating. .....The Government of the Hong Kong Special Administrative Region shall safeguard the free flow of capital within, into and out of the Region.” (Article 112) “The Exchange Fund of the Hong Kong Thus when the Fed moves its target short-term interest rate up and down, interest rates in Hong Kong tend to move in … (2010) revealed the significant negative impact of fiscal effect in Hong Kong, which violates the … have been so important to Hong Kong traditionally, have suddenly plummeted because of the government’s policies. Hong Kong Policy Series. Cash injection for suffering medical sector. Leaving most of the community’s income and wealth in the hands of individuals and businesses gives the private sector greater flexibility and efficiency in making investment decisions and optimises the returns for the community. Press Click on the button below to get started. In February this year, the Washington-based Heritage Foundation named Hong Kong the world's freest economy - for 22 years in a row, citing, among other things, our "vibrant commercial interactions and entrepreneurial growth". Meanwhile, given last year’s fiscal overflow, major tax relief measures are being introduced in the FY 2018 budget that will slash revenue. There’s an aging population. This paper attempts to establish a framework for evaluating the fiscal effect to prevent the abuse of fiscal measures. Just in case you think this speech is somehow an anomaly, let’s now look at some slides from a separate presentation by different Hong Kong officials. Furthermore, tax deductions are being introduced for the elderly and the disabled. And I’ve shown that this makes a difference by comparing Hong Kong’s economic performance to the comparatively lackluster (or weak) performance of economies in the United States, Argentina, and France. I would hope that some of those governments in Europe, those that have accused Hong Kong of being a tax haven, would look at the way they conduct their own fiscal policies. Hong Kong is in an enviable fiscal position entering FY 2018, which begins on 1 April, thanks to last fiscal year’s record-breaking surplus. Hong Kong pursued such a discretionary policy in the 1990s, resulting in a sustained attack on the Hong Kong dollar in the midst of the crisis. LinkedIn The findings reject the “market economy” image of Hong Kong, and show that political considerations often override economic logic in shaping economic policy. Few companies and individuals would find it worth the risk to evade taxes at this low level. “No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. LinkedIn The Hong Kong budget this year is yet another simplistic bookkeeping exercise, with barely an attempt to frame its spending priorities within a coherent fiscal policy. Part of her fiscal vision is to adapt social welfare programs to the needs of a changing population, and public spending as a share of GDP will increase over the medium term—from 19.3% in FY 2017 to 21.2% in FY 2018 and rising further through 2022. Hong Kong is in an enviable fiscal position entering FY 2018, which begins on 1 April, thanks to last fiscal year’s record-breaking surplus. Fiscal expenditure are part of government budget balance calculation. For all practical purposes, Hong Kong delegated the determination of its monetary policy to the Federal Reserve through its unilateral decision in 1983 to peg the Hong Kong Considering FY 2018’s jump in spending, as well as last year’s unexpectedly robust GDP growth of 3.8%, the government now expects GDP to increase 3.0%–4.0% in 2018. Over the medium term, both the government and our panel expect sound fiscal policy to persist, although fiscal surpluses as a share of GDP are expected to moderate. Indeed, officials actually brag that fewer and fewer people are riding in thewagon of dependency. Most notably, salaried workers will see their taxes rebated sharply, while marginal tax rates and the number of tax brackets will be adjusted to the benefit of taxpayers. My Cart 5 years of economic forecasts for more than 30 economic indicators. Consumer prices were flat from the previous month in February, after rising 0.20% in January. Our commitment to small government demands strong fiscal discipline….It is my responsibility to keep expenditure growth commensurate with growth in our GDP. Our maximum salaries tax rate is 15 per cent and the profits tax rate a flat 16.5 per cent. Hong Kong has a simple tax system built on low tax rates. Last year’s sizable fiscal surplus is expected to come in at an estimated 5.2% of GDP. And that can pose challenges to public finance in the longer term. In large part, as you see from the next slide, because there is almost no redistribution spending. Hong Kong's strengths as an economy are clear and compelling. But perhaps the most encouraging thing about Hong Kong is that the nation’s top officials genuinely seem to understand the importance of small government. Government would continue to support the pillar industries (trade and There are protests about a lack of democracy. For FY 2018, higher spending and lower revenue is expected to moderate the overflow, and FocusEconomics panelists expect a fiscal surplus of 1.8% of GDP. The government will prioritize addressing the city’s shrinking labor pool and aging population with greater health care spending. Short of a credible fix in such policies, the revenue problems will not go away. The second difference lies in fiscal policy, and not so much because Hong Kong does not have room to move but rather because it does not use it. Last year, I set up a Working Group on Long-term Fiscal Planning to conduct a fiscal sustainability health check. The Hong Kong dollar shall be freely convertible. And government officials brag about small government. Last year’s unexpectedly large windfall has given the government space to cut taxes and promote a new forward-looking fiscal philosophy, which is intended to position Hong Kong as an innovation and technology hub in the region, as well as improve the social safety net for an aging population. By the way, you’ll also notice that there’s virtually no red ink in Hong Kong, largely because the government focuses on controlling the disease of excessive spending. The IMF projects the real GDP of Hong Kong to have … The Hong Kong government emphasizes very much the importance of achieving the “financial stability” objective, and has been very successful in controlling expenditure growth and in accumulating fiscal reserves. But at least for now, Hong Kong is a tribute to the success of free markets and small government. And he specifically mentions the importance of controlling the growth of government, which is the core message of Mitchell’s Golden Rule. Few companies and individuals would find it worth the risk to evade taxes at this low level. Total spending is set to increase 17.6% in FY 2018 and, along with total revenue set to fall by 1.3%, is expected to result in an HKD 46.6 billion (USD 5.9 billion) fiscal surplus. Financial Secretary Paul Chan announced a very expansionary budget for FY 2018 on 28 February, delivering the first fiscal policy address since Chief Executive Carrie Lam assumed the top role last July. This chapter examines two aspects of economic policy: fiscal policy and industrial policy. Google+, © Copyright: 2021. And, speaking of Europe, he says the statist governments from that continent should clean up their own messes before criticizing Hong Kong for being responsible. Twitter This helps to foster a business environment conducive to growth and competitiveness. Discussing the potential future impact of the OECD’s BEPS 2.0 initiatives on Fiscal Policy in Hong Kong . The folks in Hong Kong don’t want to wind up like Europe. Last year’s unexpectedly large windfall has given … This will entail 1 percent spending cuts for every government department. A tax policy unit would be set up to explore tax measures to enhance Hong Kong’s competitiveness and to support the sustainable development of our society. Financial Secretary John Tsang has recently announced there will be a mild fiscal squeeze in Hong Kong in the future. Home > Countries > Hong Kong > Fiscal Balance, Hong Kong is in an enviable fiscal position entering FY 2018, which begins on 1 April, thanks to last fiscal year’s record-breaking surplus. The IHS Markit Hong Kong SAR Purchasing Managers’ Index (PMI) increased from 50.2 in February, to 50.5 in March. The Hong Kong official is bragging about the low-tax regime, which features a flat tax of 15 percent! Here are some excerpts from a recent speech delivered by Hong Kong’s Financial Secretary. Given the adoption of the linked exchange rate since October 1983, fiscal policy becomes the only measurement for stabilizing the Hong Kong economy. I’ve had ample reason to praise Hong Kong’s economic policy. Hong Kong SAR has a robust policy framework to deal with risks and has built up appropriate buffers to absorb shocks, says the report. And, such stimulus must not compromise the medium -term sustainability of fiscal policy. To address young people’s concerns, spending on education will increase, and students in need will receive one-off grants and fee waivers for the secondary school exam. Our annual recurrent government expenditure has remained steady over the past five years, at 13 per cent of GDP. None of this means that Hong Kong doesn’t have any challenges. Retail sales jumped 30.0% in year-on-year terms in February, after falling 13.7% in January. IMF commends Hong Kong's macroeconomic policy framework ***** In its Staff Report on Hong Kong released today (January 9), the International Monetary Fund (IMF) is highly supportive of the Government's policy framework in fostering economic growth and maintaining the competitiveness of Hong Kong as an international financial centre. If an employment is located outside Hong Kong (SAR), it will be regarded as being a non-Hong Kong (SAR)-located employment and the liability to salaries tax will be limited to tax on income from services rendered in Hong Kong (SAR) plus the attributable leave. Here’s one that warmed my heart. Compare Fiscal Expenditure by Country Start working with the reports used by the world’s major financial institutions, multinational enterprises & government agencies now. Given last fiscal year’s massive HKD 138 billion (USD 17.6 billion) estimated surplus and this year’s bright economic outlook, the government is hoping to further diversify the economy and nurture longer-term growth through new areas of investment, setting aside HKD 50.0 billion to develop the city’s innovation and technology industries. Hong-Kong 3.3 Mar-08 5.3 Mar-09 2.0 61% Taiwan (China) 3.8 Apr-08 5.8 Apr-09 2.0 51% Canada 6.2 May-08 8.8 May-09 2.6 42% Sweden 6.0 Apr-08 8.3 Apr-09 2.3 38% UK 5.2 Q1 2008 7.1 Q1 2009 1.9 37% Turkey 11.6 Feb-08 15.5 Feb-09 3.9 34% Australia 4.3 Apr-08 5.6 Apr-09 1.3 30% Mexico 4.0 Q1 2008 5.1 Q1 2009 1.1 28% Chile 7.7 Mar-08 9.8 Mar-09 2.1 28% Thailand 1.7 Q1 2008 2.1 Q1 2009 0.4 27% … The Moreover, a new commission geared towards youth development will be set up to begin tackling other challenges, including full-time employment and home ownership. But what’s even more impressive is that Hong Kong has a very small burden of government spending. This paper attempts to establish a framework for evaluating the fiscal effect to prevent the abuse of fiscal measures. The paper from the Hong Kong Monetary Authority discusses the central role of fiscal That would hurt HK’s competitiveness and will hurt HK’s property market more, further depressing the economy. ECO3209 The Hong Kong Economy Lecture 6 Hong Kong’s Public Finance Chan’s address was met positively by analysts, who noted the pro-cyclical spending plan would likely add approximately 0.5 percentage points to headline GDP growth this year without threatening the city’s sound fiscal stance. Most recently, it was ranked (once again) as the world’s freest economy. Hardly. Last year’s HKD 138 billion (USD 17.6 billion) fiscal surplus, which left the government’s forecast of a HKD 16.3 billion (USD 2.1 billion) surplus in the dust, was due in large part to an unexpected surge in stamp duty and land premium revenues stemming from massive gains in the booming asset and property markets, respectively. Photo: AFP Photo: AFP The empirical study of Jha et al. Principally, it is guided by an established set of tests and judgments in court … Recent fiscal fortunes have also given Lam’s administration the opportunity to increase recurrent expenditures. Financial Secretary Paul Chan announced a very expansionary budget for FY 2018 on 28 February, delivering the first fiscal policy address since Chief Executive Carrie Lam assumed the top role last July. measure left for the Hong Kong government is the fiscal policy. And that helps keep our compliance and enforcement costs low. On the financial services side, it will promote a three-year pilot program to encourage firms to issue bonds in Hong Kong, as well as launch a green finance program. Given the adoption of the linked exchange rate since October 1983, fiscal policy becomes the only measurement for stabilizing the Hong Kong economy. …we have not responded irresponsibly to…populist calls by introducing social policies that increase government spending disproportionally. Against this backdrop, Chan pledged to return approximately 40.0% of the FY 2017 surplus to taxpayers. Hong Kong Fiscal Expenditure Fiscal expenditure refers to the sum of government expenses, including spending on goods and services, investment and transfer payments like social security and unemployment benefits. View HKE Lecture 6 Fiscal Policy Budget.pptx from ECON 3209 at Lingnan University, China. And there’s the uncertainty of China. That said, the FY 2018 budget […] still delivered concessions aplenty, which will help counter rising headwinds from further Fed hikes, in our view. The Hong Kong Special Administrative Region (HKSAR) shall have independent finances, and shall use its revenues exclusively for its own purposes. Our maximum salaries tax rate is 15 per cent and the profits tax rate a flat 16.5 per cent. Of the HKD 139.1 billion (US$17.9 billion) allocated for the 2020-2021 budget, HKD120 billion (US$15.5 billion) has been designated for what is known as ‘relief measures’ for individuals. Improving growth prospects have also led to the government upgrading its multi-year fiscal surplus projections, despite increased expenditure budgeted.”. I believe they could learn a lesson from us about the virtues of small government. This remarkable performance is attributed to adhering consistently to budgetary guidelines. Financial Secretary Paul Chan announced a very expansionary budget for FY 2018 on 28 February, delivering the first fiscal policy address since Chief Executive Carrie Lam assumed the top role last July. And that helps keep our compliance and enforcement costs low. Expansionary and … fiscal discipline calls for adherence to “value for money”, “user pays” and “cost recovery” principles. Commenting on Chan’s tabling of the FY 2018 budget, Kelvin Lau, Senior Economist at Standard Chartered, noted: “Strong momentum at the start of 2018 allowed the financial secretary to deflect calls for one-off handouts despite the government’s considerable fiscal windfalls from land sales and stamp duty; instead the focus is on boosting Hong Kong’s long-term competitiveness, especially on the technology and innovation front. Relieving individual burdens . Companies and individuals (sole proprietors) carrying out business in Hong Kong will be liable to Profits Tax provided that the profits are sourced in Hong Kong. contribution to inflation , Hong Kong ’s inflation is largely influenced by non -tradables, with the food component accounting for only a small share. At the same time, higher In Hong Kong, fiscal measures are recognised as being of particular importance as a counter-cyclical tool given that there is little room for manoeuvre on the monetary policy front under the linked exchange rate system. In particular, inflation in Hong Kong SAR is heavily influenced by changes in the rental component, which in turn is affected by the boom-bust cycle in property prices. Can you imagine American lawmakers with this kind of good sense? Our maximum salaries tax rate is 15 per cent and the profits tax rate a flat 16.5 per cent. In such a case, the taxpayer generally apportions their income between the Hong Kong (SAR) and non-Hong Kong (SAR) services … Understanding the potential impact that these global changes could have on Hong Kong’s fiscal policy and its competitiveness as an international financial centre will need to be carefully considered by industry and government authorities alike. Hoping to position Hong Kong as a hub for biotechnology, artificial intelligence and financial technology (fintech), the government plans to invest HKD 20.0 billion this year in the first phase of the new Hong Kong-Shenzhen Innovation and Technology Park. Consumer prices increased a seasonally-adjusted 0.40% over the previous month in March, after prices were stable in February. HKSAR shall practi se an independent taxation system, taking the low tax policy previously pursued in Hong Kong as reference. Get a sample report showing our regional, country and commodities data and analysis. Hong Kong Profits Tax is a tax levied on the net profits on business. Here’s Article 107 from the Basic Law, which is “the constitutional document” for Hong Kong: The most important part of Article 107, needless to say, is that part of keeping budgetary growth “commensurate with the growth rate of its gross domestic product.”. Hong Kong's real Gross Domestic Product is expected to contract by 1.2 per cent in 2019 and return to positive growth of 1 per cent in 2020, led by a recovery of private consumption. A series of expenditure-control measures, including a 2 per cent efficiency enhancement over the next three financial years, has been rolled out. Managing the financial budgets through budgetary guidelines is a unique feature … It also encourages productivity and labour participation. New spending has also been allocated to improve the city’s trading and logistics infrastructure, as well as tourism infrastructure. …The fact that our total government expenditure on social welfare has remained at less than 3 per cent of our GDP over the past five years speaks volumes about the precision, as well as the effectiveness, of these measures. We did it because we are keenly aware of Hong Kong’s low fertility rate and ageing population, not unlike many advanced economies. brought fiscal policy to the forefront. The recovery has been facilitated by expansionary monetary and fiscal policies in Hong Kong and by China’s robust recovery. Twitter Expansionary fiscal policy involves increasing government purchases or decreasing taxes. The IHS Markit Hong Kong SAR Purchasing Managers’ Index (PMI) increased to 50.2 in February, from 47.8 in January. He is an expert in international tax competition and supply-side tax policy. Few companies and individuals would find it worth the risk to evade taxes at this low level. Keeping our government small is at the heart of our fiscal principles. At the same time, because interest rates follow trends in the U.S., fiscal policy The source of profits is one of the most controversial topics in the context of Hong Kong taxation. was a view that, to mitigate risks to the fixed exchange rate regime, countercyclical fiscal policy should be used sparingly and only under exceptional circumstances. He brags about small government and low tax rates! Because of arbitrage, interest rates tend to be roughly the same in any two free market economies with fixed exchange rates and open capital markets. Even though the Hong Kong government realises that it has a substantial policy implication in the fiscal policy, it does not have any scientific and sophisticated framework for evaluating the fiscal effect on the economy quantitatively. While 2030 appears quite far off, the pressures on the budget could start as early as 2015. HONG KONG, Feb 24 (Reuters) - The following are highlights of Hong Kong’s budget for the 2016/17 fiscal year starting in April, presented by Financial Secretary John Tsang. [5] Responding to an acute staffing crisis at the city’s public … Client Log In, Facebook First, IMF estimates indicate that by 2030, households' health-care costs could rise by 7 percentage points of GDP. Most of those costs will need to be met by higher public spending, under current policies. | Hong Kong Fiscal Balance | Privacy Policy | Cookies Policy | Terms & Conditions | Sitemap | RSS feed, Hong Kong: Consumer prices increase slightly in March, Hong Kong: PMI improves in March pointing to a marginal expansion in activity, Hong Kong: Retail sales rise for the first time since January 2019 in February, Hong Kong: PMI improves in February pointing to a stabilization in activity. 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