HK posts budget surplus as economy set for stronger growth

HONG KONG (Reuters) – Hong Kong expects economic growth to come in between 1.5 to 3.5  per cent in 2013, the city’s financial secretary John Tsang said in his annual budget speech on Wednesday, while offering a raft of relief measures, tax concessions and sweeteners.

“The intricate external environment will remain unstable in the year ahead,” said Tsang, warning of potential instability from currency wars and a trade slowdown to the financial hub’s small and open economy.

A poll of eight banks estimated that Hong Kong’s GDP this year would grow 3.1 per cent, accelerating from GDP growth of 1.4 per cent in 2012, its slowest rate since 2009.

Hong Kong Finance Chief John Tsang consults the budget file before answering a question during a press conference following his budget speech in Hong Kong on February 27. Hong Kong’s economy is expected to see “modest” growth this year owing to tepid exports, the city’s finance chief said as he delivered a budget aimed at taming soaring property prices

In a budget short on bold steps, Tsang offered a mixed bag of policies, including various relief measures for the poor and elderly, a marginal corporate tax and salary rebate and moves to bolster the city’s financial sector and private equity industry.

Soaring land revenues and profits taxes swelled public coffers to a bumper HK$64.9 billion ($8.37 billion) fiscal surplus, bucking previous government expectations for a deficit.

While Tsang unveiled no major property moves in his address, he pledged to continue bolstering land supply, and earmarked HK$4.5 billion in the coming five years to seek out potential new areas for land reclamation outside of Victoria Harbour “on an appropriate scale” in the densely populated city.

Tsang said 46 sites, including 28 new sites, would be offered for sale in the new fiscal year, that begins on April 1.

Last week, the government announced a new round of property cooling measures including higher stamp duties and home loan curbs to ease some of the world’s most expensive home prices.

Asian economies are battling against rising inflation partly caused by hot money flows from loose monetary policies at home and abroad, with governments raising stamp duties and tightening

lending in response to the threat of a property bubble.

To lure more private equity funds amid competition with Singapore – that has signed a raft of tax treaties granting exemptions to the industry there – Hong Kong said it would extend profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong.

“This will allow private equity funds to enjoy the same tax exemption as offshore funds,” Tsang said.