Appropriately allocating resources to provide effective antidotes to various problems and promoting continual economic development will help relieve the ever-growing financial burden in the long run.
Benefiting from unexpectedly high land sales revenue, the fiscal surplus for this financial year has already passed the 100 billion mark and increased to HKD110.8 billion, which is an all-time high. Yet, the Budget has not come with additional “candies” or substantial tax reduction. Instead, HKD61 billion from the surplus is allocated for promoting forward-looking work in elderly care, sports and recreation, and development in innovation and technology. Also, the additional surplus of HKD18 billion is entirely reserved for education to strengthen academic research as well as scientific research and development in tertiary education. All this may seem to be making better use of the huge surplus. However, the general financial management philosophy has remained conservative and the colossal fiscal reserves have not been spent more wisely by investing in the future.
Forward-looking tax policy unit
Still, there is an interesting point in the Budget, which is the proposal to set up a tax policy unit together with the bold suggestion of examining the competitiveness of our tax regime and addressing the problem of a narrow tax base. This is timely and forward-looking. As a matter of fact, some of Hong Kong’s chambers of commerce, professional associations and think tanks already proposed reviewing the tax system more than a decade ago. Even the current Financial Secretary has strongly advocated forming a tax policy unit. The last comprehensive tax policy review in Hong Kong was conducted 41 years ago. In view of today’s global economy and tax environment, Hong Kong’s simple and low tax regime is no longer as appealing as it used to be.
In recent years, neighboring countries, Europe, the US and even the free-trade zones in the Mainland have provided tax incentives to attract investments and to facilitate the development of specific industries. Although there is concern that reforms could complicate the tax system, there are already certain profit tax incentives in the local treasury market. The key is how to objectively and comprehensively review the tax system so that we could explore a new future direction that propels the economic diversification and sustainable development of Hong Kong in the fiercely competitive international environment.
Imperative to break conservative mentality in financial management
In the face of the volatile situations in the global economy and the financial markets, a host of long-standing problems have broken out in Hong Kong. Added to this structural problems like an aging population, the government must break its conservative mentality in managing public finance. Now that Hong Kong’s public coffers are brimming over with money, appropriately allocating resources to provide effective antidotes to various problems and promoting continual economic development will help relieve the ever-growing financial burden in the long run. Regrettably, in the Budget’s section on economic growth, little commendable has been mentioned regarding assistance in finance or through policies. We hope that the government could be more proactive in spending the reserves wisely, increasing investment and promoting economic diversification, so that Hong Kong can grow and develop further.
No new measures to support SMEs
In Hong Kong, more than 90% of all local companies are SMEs, which play an integral part in Hong Kong’s future growth. However, in its supportive measures to drive SME development, this year’s Budget is much of a muchness and has not added anything new. Whether SMEs could benefit is seriously worrying. For example, project funding schemes such as the “SME Financing Guarantee Scheme” have exceedingly high requirements on the past performance in profitability of applicants, which has resulted in a consistently low success rate and weakened the actual effectiveness of the scheme. Besides, the government should consider simplifying the application procedures and relaxing the restrictions of the “Research and Development Cash Rebate Scheme”, and the cash rebate for research and development should also be extended to business partnerships to offer comprehensive support for the innovation and restructuring of SMEs. These would facilitate the long-term development of SMEs - the backbone of Hong Kong’s economy.
With uncertainties in the global economy, constantly increasing wages and rents, and ever-fiercer market competition on their plates, SMEs are finding it incredibly difficult to adapt to the business environment. At present, the developmental restrictions of SMEs have stemmed from the clearly insufficient government support, and the Budget has also failed to meet their needs practically. We hope that the government does not lose sight of the predicament that SMEs are in when they care for the underprivileged. To realistically address the burning needs of SMEs, the government and lending institutions should strengthen their communication and seek a consensus as soon as possible so that the approval threshold can be lowered and SMEs with funding difficulties could receive real help.
Instructive example from Singapore
The proactive SME incentives offered by governments in the region provide Hong Kong with some illuminating examples. Singapore in its latest budget, for instance, proposes offering the “Wage Credit Scheme” and “Special Employment Credit” to companies that may be facing cost or cash flow management problems. These stand in sharp contrast to the minor patch-ups of the SAR government. In recent years, many countries have already reduced the corporation profits tax as leverage to attract foreign investment and to encourage business start-ups. Therefore, the government should launch a series of permanent tax-related incentives for SMEs. These should include a lower profits tax rate for low-profit enterprises and start-ups, as well as tax incentives for foreign companies setting up regional headquarters in Hong Kong.
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