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February 21st, 2009:

Rates Waivers, Tax Rebates To Be Unveiled, Modest Relief On Way, Says Source

Gary Cheung, SCMP – Feb 21, 2009

Modest relief measures, such as rates waivers for two quarters and tax rebates of HK$5,000-plus, are expected to be announced in Wednesday’s budget as the government opts to save cash for stormy times ahead.

A source familiar with the drafting of the budget said the administration was preparing for the worst-case scenario of a bad economy this year and next and expected to have a deficit for the next three years.

“Nobody can say whether the economy will recover next year and if we have to prepare for the worst,” the source said. “That’s why the government prefers keeping as much ammunition in its war chest as it can to cope with growing volatility in the next two years.”

The source said the government might grant fresh sweeteners to the needy after the summer if the economy continued to deteriorate.

Given the administration’s forecast of a gloomy economic outlook, the biggest sweetener to be announced by Financial Secretary John Tsang Chun-wah on Wednesday would be tax rebates of between HK$5,000 and HK$10,000, the source said. Mr Tsang was also expected to waive rates for property owners for two quarters, according to the source.

The amount of relief for taxpayers is expected to be substantially less than that handed out in last year’s giveaway budget.

In his maiden budget in February last year, Mr Tsang announced a rebate of 75 per cent of the tax payable for the 2007-08 financial year, capped at HK$25,000, and granted rates waivers for four quarters.

Job creation will be the top priority for his second budget, which will spell out the details of a one-year scheme to subsidise companies hiring university graduates as interns.

It is understood that 4,000 positions will be provided for students who complete university studies this summer and who did so last year, with the government paying a monthly HK$2,000 subsidy to local companies hiring graduates as interns to work in Hong Kong, and HK$3,000 for graduates hired to work on the mainland.

The administration will not set a minimum salary for the graduates hired as interns. But one source said firms in the scheme would have to pledge that they would not sack staff after hiring a graduate through the government subsidy.

Mr Tsang, who said this month that the government was likely to have a deficit of more than HK$7.5 billion for the next financial year, is expected to announce that it will face a deficit in the next three financial years, due to increased spending on infrastructure projects.

Senior officials are considering the possibility of issuing bonds to fund long-term investments and increase cash flow for the administration, following growing calls from economists.

The administration is also considering whether to raise tobacco duty to cut cigarette consumption, especially among young people.

Its figures show a 13.8 per cent rise in cigarette consumption since 2006 despite a smoking ban in restaurants. Tobacco duties in Hong Kong have remained unchanged since April 1, 2001.

Another source said Mr Tsang would not provide a further electricity charge subsidy, as many households were unlikely to use up the existing handout in the next financial year. In his previous budget he announced a HK$1,800 electricity subsidy for each household, with the administration crediting HK$300 to each domestic account for six months from September.

In July, Chief Executive Donald Tsang Yam-kuen granted a further HK$1,800 electricity subsidy to each household.