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The Budget 2005-2006: My Views

The Budget 2005-2006: My Views. Stephen Yan-Leung Cheung Prof. (Chair) of Finance City University of Hong Kong. Content. Hong Kong Economy How can we position ourselves? Opportunities in China Market Uncertainties. Government Deficit (I). Government Deficit (II).

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The Budget 2005-2006: My Views

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  1. The Budget 2005-2006: My Views Stephen Yan-Leung Cheung Prof. (Chair) of Finance City University of Hong Kong

  2. Content • Hong Kong Economy • How can we position ourselves? • Opportunities in China Market • Uncertainties

  3. Government Deficit (I)

  4. Government Deficit (II) Source: The Budget 2004-05

  5. Observations (I) • Operating revenue cannot cover operating expenditure • Operating deficit will last until 2008/09 • Consolidated deficit will last until 2007/08

  6. Observations (II) • The consolidated surplus/ (deficit) is boosted by the 20 billion bond issue • Interestingly, Mr. Tang’s speech did not mention about the payment • Issuing bond is a source of financing not income

  7. Operating Expenditure Forecast (in $billion) Target Forecast Source: The Budget 2004-05

  8. Operating Revenue Forecast (in $billion) Target Forecast Source: The Budget 2004-05

  9. Surplus/Deficit Forecast (in $billion) Source: The Budget 2004-05

  10. Observations (III) • Operating expenditure drops from 218 billion in 03/04 to 200 billion in 08/09 → 8% decrease • Operating revenue increases from 155 billion in 03/04 to 200 billion in 08/09 → 29% increase • Question is how to boost up government revenue

  11. Facts • Hong Kong has a narrow tax-base • No room to increase direct tax rate • Salary tax • Profit tax • Depend too much on direct tax • 40:60 (indirect tax: direct tax) • Only 40% working population pay salary tax • For those who pay the standard tax rate (less than 1%) are responsible for more than 20% of the salary tax revenue • Government becomes serious on GST

  12. Economic Situation • Hong Kong GDP in Q3 increased to 7.2% • Close to the GDP in 2000 Q1, which was 13.6% (IT bubble) • The total exports in Q4 2004 increased around 13% • Tourism, individual travel scheme • CEPA

  13. Property Market Recovery • Recovery in 2003 Q4 and 2004 Q1 • Number of transactions increased by 22% in the first half of 2004 over the second half of 2003 • Average property price dropped slightly recently but prices went up by 26% relatively to mid-2003 • Affordability ratio improves substantially

  14. Prices for Residential Property

  15. Tourism • Number of tourists arriving at Hong Kong increased • substantially from China, and • from other destinations • Number of tourists arriving at Hong Kong in June 2004 exceeded the pre-SARS level • In July 2004, number of tourists reached 1.99 million

  16. Visitor Arrivals

  17. Consumption • Private consumption expenditure had an average growth of 7% in real term in Q1-3 2004 • The volume of total retail sales increased by 6.8% in Dec 2004 • Reflection of strong rebound of local consumers and tourists

  18. Private Consumption Expenditure

  19. Hong Kong’s Price Movement

  20. Market Forecast Hong Kong’s Economic Growth Sources: Census and Statistics Department, Reuters, and BOCHK Research

  21. Hong Kong Economic Situation (I) Two Problems • Deflation • A period of 5 years & 8 months • CPI increased by 0.2% in Dec 04 but fell by 0.5% in Jan 05 • Declined in prices were recorded in Jan 2005 for housing (-3.1% in the Composite CPI), durable goods (-2.0% in the Composite CPI), miscellaneous services which cover package tours (-1.6% in the Composite CPI), and transport (-0.1% in the Composite CPI)

  22. Hong Kong Economic Situation (II) • Unemployment • Unemployment rate at 6.4% in Nov 04 - Jan 05 • Structural problem • Possible to drop to 5 - 6% • The age group of 15 -19 has high unemployment rate • How to improve the education level of population? • How?

  23. Uncertainties • Oil price • US$50/barrel • US economic figures good/bad? • US interest rate increase

  24. China Economy • Macro-economic adjustment started to work? • Fixed asset investment slowed • 2004 Q1-3 GDP increased 9.5% • Inflation is 1.9% in Jan of 2005 • Prices of food items increased by 4.0% • Prices of non-food items increased by 0.8% • China economy further down may affect the external trade of Hong Kong

  25. Budget 2005-2006 • Recurrent revenue and non-recurrent revenue will increase • Budget deficit will decrease substantially • Structural deficit? • How to match recurrent expenditure with recurrent revenue?

  26. ~ END ~

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