|
Budget blues
While there are few surprises in John Tsang’s budget for 2009-10, there are some perks for property owners, says Alex Frew McMillan
In hard times, people inevitably start looking to the government to help them out. So there was more attention than normal on the Hong Kong government when Financial Secretary John Tsang unveiled his second budget on February 25. What kind of help would Hong Kong’s beleaguered workforce get? What perks might property owners expect?
The response to the budget, which covers the 2009-10 tax year that will start on April 1, was generally underwhelming. “No surprises,” Merrill Lynch wrote in its budget brief.
The budget “contains very few immediate measures, tax or non-tax, that are needed urgently to alleviate the burden suffered by those most affected by the economic downturn, especially the middle class and small- and medium-size enterprises,” accounting and tax-consulting firm Deloitte concludes in its budget analysis.
The new budget does make some concessions to homeowners. It waives rates for the first two quarters of the 2009-10 tax year, up to a ceiling of HK$1,500 per property per quarter.
Tsang estimates the rates break will mean 90 percent of domestic properties pay no rates for that six-month period, as well as 60 percent of commercial, retail and industrial properties. He figures the concession will cost the government around HK$4.2 billion.
People who rent government flats are also getting a break. The budget has built in a 20 percent reduction in rents for government properties for three months, with the same concession for people who have short-term deals to rent government land. That move should affect 17,000 tenants, costing the government around HK$83 million.
This budget’s waiver on rates wasn’t as generous as the break for the current 2008-09 tax year, which ends on March 31. Based on the last budget, property owners have been benefiting from a waiver in all four quarters, of up to HK$5,000 per quarter.
No one buys a property because they’ll be getting a temporary break in their rates. But the rate waivers in this budget are unlikely to do much either to stimulate the property market or the economy, according to Deloitte.
“Although this still represents a welcome relief for some, the amounts involved may not be sufficient to have a significant impact,” the firm concludes.
We shouldn’t look a gift horse in the mouth, though – the government has been very generous in its rates concessions over the past few years, often waiving the quarterly chargethanks to its surpluses, which stem in part from stamp duty paid on real-estate and stock-market transactions.
A tax break is a tax break, after all, and governments aren’t known for their largesse. As Benjamin Franklin famously said,
“In this world, nothing can be said to be certain, except death and taxes.”
Suzanne Liu Duddek, an accountant who runs the firm S. Liu & Co., concludes that Hong Kongers are fortunate to be getting any form of tax break, at a time that the government is bracing for tough times ahead.
“They are trying to hold off their bullets and keep their ammunition for later on,” Liu says. “I thought there wouldn’t be any refund or concessions, so it is kind of a bonus.” The rates waiver is “better than nothing”, she adds. “Anything would help, so it’s a pleasant surprise.”
But the headline item in the budget was a letdown. Beyond concessions related to real estate, the major attention grabber is a 50 percent tax break on income tax for this tax year, the 2008-09 year, up to a ceiling of HK$6,000.
That was a big reduction from last year’s budget, which waived 75 percent of our tax bills, up to HK$25,000. Those bills will of course be due next year, due on income in the current tax year, which ends in March.
The government says that break will cover all 1.4 million taxpayers in Hong Kong, who pay either salaries tax or pay under personal assessment if they run their own business. It costs roughly the same amount as the concession on rates, coming in at HK$4.1 billion. Around 490,000 people are expected to get the full HK$6,000 break.
“The insubstantial amount may serve little efficacy in the alleviation of the problems facing the middle class, as it would have minimal cash-flow impact,” Deloitte says. Translation? Don’t expect any extra dollars in the pocket of the man on the street.
What’s more, Tsang didn’t win many friends when answering questions about the budget in the Legislative Council the day after he delivered it. In answering a query about why the government hadn’t set up a loan scheme for middle-class people who had lost their jobs, he said white-collar workers could make the most of their savings and even borrow against their home in times of need.
“Some of these people may have their own properties, and they are capable of seeking loans from banks,” Tsang said.
“They have already lost their jobs – how can you still ask them to borrow money from the banks?” the Hon. Emily Lau retorted.
There was little other help on the home front – most of the other tax measures that apply to homeowners were unchanged. For instance, there was no change in the amount of mortgage interest people can deduct, currently capped at HK$100,000 per year. The deduction can be claimed for up to 10 years on any one property.
Tax consulting firm Horwarth says Tsang should have eliminated the limit on the cap and also scrapped the time limit on the deduction.
The property tax also remains the same, with landlords taxed at a rate of 15 percent on 80 percent of the rent they receive on a property. The 20 percent deduction in rent is designed as a concession for repairs and expenses. Stamp duty also stays the same as it did for the 2008-09 tax year, with a nominal fee of HK$100 for properties under HK$2 million and a graduated rate ranging from 1.5 percent to 3.75 percent of the purchase price over that.
The other main point of the budget was to introduce a variety of measures designed to stimulate the creation of 62,000 jobs and internships. The government said it was allocating HK$1.6 billion to achieve that goal. But critics say the details of how that target is going to be achieved are vague, and the specific plans for implementation need to be ironed out as fast as possible.
Smokers won’t be happy to see the tobacco duty increased by 50 percent, with immediate effect. But government fees and charges have been frozen until the end of the next tax year if they are “related to people’s livelihood”, such as business registration fees. Tsang threw a few curveballs, outlining how Hong Kong would introduce new stamp duty and profits tax measures designed to cater to Islamic finance. And he encouraged the use of electric cars by extending an exemption on the first registration tax on new ones for a further five years.
But the budget didn’t go down well. A survey conducted by Hong Kong University showed that it was one of the most unpopular since the handover, outdone only by Antony Leung’s budget unveiled in 2003. At that time, 49.6 percent of respondents were unhappy, whereas 22 percent of Hong Kongers expressed disappointment this time around.
Others commend Tsang for being prudent with the government’s money during a difficult period. And the secretary himself warned us not to expect too much.
“The current financial turmoil is undoubtedly a severe test that poses challenges to individuals, families, enterprises, societies and governments,” Tsang said in delivering the budget. “At this crucial moment, it is with no small amount of trepidation that I, as financial secretary, am serving the citizens and braving the storm with you under the weight of a challenging mission.
“In meeting the challenges ahead, we should also realise that the government cannot solve all problems,” he added.
Click here for more on home decorating
|
