Hong Kong should record a consolidated budget deficit for the fiscal year 2021/22 of HK$9 billion ($1.1 billion), much less than the government’s original estimate of HK$101.6 billion, according to estimates by the PwC accounting firm.
The data are based on projected fiscal revenue of HK$676.4 billion and expenditure of HK$685.4 billion for the year.
PwC noted strong growth in exports of goods and increased local spending due to a consumption voucher scheme, which provided favourable conditions for further economic revival.
However, with the fifth wave of the epidemic involving rapid spread of the Omicron variant, PwC said Hong Kong’s economy is still full of uncertainties in the new year.
“With the fifth wave of the pandemic affecting businesses and the general public, the next two months will be key,” Agnes Wong, PwC’s Hong Kong tax partner, said. “Government expenditure may have to increase.”
PwC suggested issuing another consumption voucher for at least HK$2,500, half the amount in the last round.
Raise Tax Allowances
All salaries’ tax allowances should be increased by at least 10%, said Wong, which would include child allowance (HK$150,000), a basic allowance (HK$150,000) and the married person’s allowance (HK$300,000).
“Assuming the fifth wave [of the Covid-19 pandemic] is tackled quickly and the border with China reopens thereafter, Hong Kong’s economy could be back in growth mode in 2022,” Wong said.
Based on PwC’s estimates, total revenues from profits tax and salaries tax will stand at HK$219.4 billion, against the government’s original projection of HK$197.2 billion.
Stamp duty is expected to generate HK$116.1 billion, 26% higher than the original forecast of HK$92 billion due to a rate increase. Land sales revenue will be about HK$125 billion, 28% higher than the original estimate of HK$ 97.6 billion.
Expenditure is estimated to be HK$685.4 billion, which is 1% lower than the original forecast of HK$692.7 billion. “The government has been facing deficits for the past two years and PwC has forecast a deficit of HK$9 billion this year,” Wong said.
“We recommend maintaining a balanced approach to spending [by] building up resources for external uncertainties alongside measures to revitalise the economy in the medium to long-term,” she added.
- George Russell