Property

How will the 2017/18 budget affect taxpayers?



Financial Secretary Paul Chan Mo-po drops the 2017/18 budget on a middle class facing record high property prices and an ageing population. So what does it mean for taxpayers?

Another year another budget. Hot on the heels of CY Leung’s last policy address on 22 February, financial secretary Paul Chan presented his first budget in the wake of John Tsang’s departure — possibly in order to take up the position of chief executive.

Before any official word came from LegCo, the likes of PwC were predicting a $70 billion surplus on strong land sales and stamp duties, and hoped for tax incentives to further Hong Kong’s smart city ambitions. The accountancy firm also suggested “salaries tax brackets be widened from $40,000 to $48,000,” and in order to “alleviate the burden on the middle class … extend the mortgage interest deduction period from 15 years to 20 years and raise the maximum interest deductible to $150,000 per annum”.

The government’s own consultation on this year’s budget stated bluntly: “There is a clear need to contain the growth of government expenditure”, which it claims demonstrates an “ongoing commitment to the community.”

What commitments can we expect this year?

2017/18 at a glance

When all was said and done and the real numbers came out, the budget surplus for the year totalled $92.8 billion, due precisely to increased land sales revenue and those market-crippling stamp duties.

Last year’s revenue came in at just shy of $560 billion, 12% higher than estimates predicted, with land sales a whopping 76% higher than expected.

According to Chan, reserves should be muscling in on $940 billion by the end of March, and GDP will grow as much as 3% this year (a figure Moody’s immediately shot down).

Outgoing chief executive Leung liked Chan’s work, and said in a statement: “These initiatives will enable the current term government to further fulfil its pledges, including supporting the development of innovation and technology, increasing land supply, alleviating poverty, caring for the elderly, supporting the disadvantaged and improving the livelihood of the grassroots.”

Perhaps Reuters put it best when it summarised this year’s budget as “populist-leaning”, reminding that Hong Kong is currently in a state of flux unseen for years, the 20th anniversary of the handover is on the way, and the SAR will “also usher in a new leader in a 26 March election involving a 1,200-member election committee stacked with Beijing loyalists”.

In other words, it’s a good time to cut taxes and make land available.

Sharing the wealth

Chan will be using that surplus to rebate salaries taxes, personal assessment taxes and profits taxes by as much as 75% to a maximum of $20,000. That will cost the government over $2 billion, but will directly impact nearly 1.5 million workers.

In addition, the bands for salaries tax will increase by $5,000 (to $45,000), which will reduce payable rates for over one million taxpayers (costing $1.5 billion). As for taxes, incentives and changes for homeowners, first on Chan’s list is waiving rates for four quarters in 2017 and 2018 to a maximum of $1,000 per quarter for each rateable property owned.

Overall, Hongkongers can expect more money to be funnelled into the tourism industry (travel agents, hotels and restaurants will receive licence fee waivers for one year), with more than $240 million earmarked for mega-events, and incentives for diversification, MICE, high-spending overnighters and destination promotions.

Also cashing in is infrastructure (spending on capital expenditures will increase 39% to more than $85 billion, with construction contributing nearly 5% to the GDP); and care for senior citizens (living allowances are set to rise to $3,435, asset limits will be relaxed, and an additional 400,000 seniors will be eligible for private healthcare services).

And there’s cash for youth development, IT and the creative industries (again).

The home front

Of course, with such a windfall from land sales last year it would be easy to assume that means more land sales this year – and therefore more supply soon.

Chan put the number of residential sites to go up for sale at 28, room for 19,000 homes. Add the Urban Renewal Authority, MTR and private redevelopment and the private land supply potential takes the number to 32,000 units (The Land Sale Programme plans were announced the next day).

“To achieve the 10-year housing supply target, we must address the shortfall in land supply for public housing development. Through the Steering Committee on Land Supply, I will co-ordinate and supervise the work on land supply with a view to narrowing the difference as soon as possible in order that applicants who are waiting for public rental housing can be housed earlier,” said Chan in his address.

“Once again, I call on the relevant district councils, local communities and LegCo members to support the rezoning of various sites for housing use in the overall interests of the community, so that people who are yearning for a residential flat can secure one at the earliest possible time.”

Chan and co aren’t being quite as generous on the office front, with plans to release just three sites for commercial development.

As Denis Ma, JLL’s head of research, sees it, those sites, representing roughly 1.8 million square feet, “will represent a 68% decrease in developable GFA compared to the previous financial year.

“The plan to release fewer sites will be a positive for landlords in emerging office nodes such as Kowloon East, where vacancy has increased above 10% on the back of sluggish demand and the completion of new supply.”

Read the full 2017-18 budget at www.budget.gov.hk.

>> Issue 262: Hong Kong-The World’s Most Expensive Property Market

>> Issue 264: Boutique developer V into the traditional leasing sector