Hong Kong economy to shrink but budget offers few handouts

Hong Kong's government forecast on Wednesday that the territory's economy will shrink this year for the first time since the Asian financial crisis more than a decade ago, but offered few handouts despite the global crisis. Financial Secretary John Tsang was reluctant to spend a lot more following a series of fiscal stimulus steps in recent months, as government finances are under pressure as the financial centre's economy contracts.
He did announce a rebate of up to HK$6,000 ($769) for 2008/09 income taxpayers but raised tobacco duty by 50 percent. "We are somewhat disappointed, it was not a bold budget," said Guy Ellis, a partner at PricewaterhouseCoopers. "Unlike in some other budgets around the world, it was not particularly aggressive. There was very little assistance for SMEs (small and medium-sized enterprises), which are a critical part of the economy here." Taxpayers would not get their rebate until this time next year, so there would be no immediate economic boost, he said.
Anti-government legislators disrupted Tsang's speech half-way through, arguing he was not doing enough for the underprivileged. Credit ratings agency Standard & Poor's said Hong Kong's creditworthiness would weaken as the contracting economy would depress government revenue, but it kept a stable outlook on its AA plus rating.
Tsang stressed the importance of maintaining Hong Kong's competitiveness, announced a programme to sell government debt and confirmed it would amend tax laws in 2009/10 to promote Islamic finance. Roddy Sage, head of financial group AFP, was unimpressed. "There was nothing of any detail in this budget," he said.
"What is he going to do to give us a head start on our competitors when the economy picks up?" Hong Kong tipped into recession in the third quarter of last year. It deepened in the fourth quarter as gross domestic product shrank a seasonally-adjusted 2 percent from the previous quarter. This was its worst performance since the second quarter of 2003 when the Sars outbreak shattered confidence.