BUDGET RESULTS UNDERLINE NEED FOR SPENDING RESTRAINT AND REVENUE ENHANCEMENT

Comment from Chamber Chief Economist, Ian K Perkin, on the Hong Kong Government's financial results for the opening six months of the fiscal year.

The SAR Government's Budget deficit for the first half of the 2003-04 fiscal year is extremely alarming and illustrates the need for continued spending restraint and, where possible, revenue enhancement.

The $70 billion deficit for the six months to the end of September (the fiscal year extends from April to March) is the worst on record for the period. It is 16.5 per cent higher than for the same period last year.

The September deficit of $14.7 billion is the second worst on record after the near $16 billion recorded in the preceding month of August.

Total spending for the year to date is up 3.6 per cent and revenue has slumped 10.9 per cent compared with the same time last year.

The deficit is likely to rise further in the current month of October, but from thereon should begin to fall, as revenue picks up towards the end of the fiscal year.

However, the inflow this year is not likely to be enough to bring the deficit down markedly.

Some big revenue items, such as land premium income and income on the fiscal reserves are likely to be well below Budget expectations and there is a serious question-mark over any revenue at all from the next issue of MTR shares.

In addition, both profits and salaries taxes are likely to continue to be under pressure because of the general state of the local economy. The Administration has also frozen many fees and charges for the current fiscal year, further reducing its potential revenue.

Taking all these factors into account, the Government is certainly looking at a far larger deficit than the $45 billion or so forecast in the 2002-03 Budget documents.

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For further information, contact: Ian K Perkin, Chief Economist, 2823-1242