Hong Kong faces budget crunch

Hong Kong will continue to suffer from deficits for the next three years predicts territory's financial secretary.

by the BBC's Damian Grammaticas

In its annual budget, Hong Kong's government has predicted a sharp drop in the territory's economic growth in the coming year.

It comes just as the city has managed to put the after-effects of the Asian financial crisis behind it.

The Financial Secretary, Donald Tsang, said Hong Kong's economy expanded by 10.5% in 2000.

It is the territory's highest growth rate since 1987, and makes it the fastest growing economy in Asia.

Donald Tsang - left taxes untouched but raised charges on tobacco, liquor, airport passenger fees and vehicle licences

But Mr. Tsang forecast that growth would drop to 4% in 2001 because of problems in the economies of Hong Kong's key trading partners.

"I expect our economic performance to be affected by the rapid slowdown of the U.S. economy, continued economic stagnation in Japan and slower growth in domestic demand in East Asia," said Mr. Tsang.

Financial gateway

China's accession to the World Trade Organisation expected later this year, will provide "significant support for the Hong Kong economy in 2001" according to Mr. Tsang.

However, he said the territory would have to work hard to hold on to its position as a leading financial centre and gateway to China in the face of competition from other Chinese cities.

He announced that Hong Kong's government had suffered a bigger than expected deficit of almost US$1.5bn in the past year.

Falling revenues from property charges in the aftermath of the Asian financial crisis, poor returns on government investments, and a shortfall from the privatisation of part of the territory's underground railway system were all to blame.

Mr. Tsang predicted that Hong Kong will continue to suffer from deficits for the next three years.

No tax rises

He left taxes untouched saying he did not want to stifle economic growth.

Instead, he raised charges on tobacco, liquor, airport passenger fees and vehicle licences.

I expect our economic performance to be affected by the rapid slowdown of the U.S. economy

Doanld Tsang, Hong Kong, financial secretary

The Financial Secretary said the recovery has taken root in Hong Kong, but there must not be a rush to improve the territory's finances at a cost to growth.

A task force been set up to look at ways of raising more government revenue.

One option is to bring in new taxes, another is to make more people and companies pay.

At present over half of Hong Kong's people pay no tax at all, and only a handful of companies contribute most to the government's coffers.

But Mr. Tsang said "our aim is to keep Hong Kong's simple and predictable tax regime, and its low tax rates."

And he hinted he would like to see gambling on football legalised before the 2002 World Cup.