Hong Kong Budget likely to push for innovation

Big Four accounting firms expect city to post $25b-$30b surplus, enabling it to invest and boost competitiveness

Hong Kong's skyline seen from Victoria Peak on Sept 8, 2017.
Hong Kong's skyline seen from Victoria Peak on Sept 8, 2017.PHOTO: AFP
A tourist taking a selfie on the Peak in Hong Kong with the skyline of the Kowloon district behind him. An index measuring global competitiveness out last September put Hong Kong up three spots at sixth. But it lagged in terms of innovation, coming i
Hong Kong's Financial Secretary Paul Chan will be delivering his Budget speech on Feb 28.

Measures to boost Hong Kong's competitiveness through innovation are widely expected to be a prominent feature of the city's Budget on Feb 28, amid expectations that reserves will hit a record high.

The Big Four accounting firms in Hong Kong - Deloitte, EY, KPMG and PwC - expect the city to record an estimated surplus of between HK$150 billion and HK$180 billion (S$25 billion and S$30 billion) for 2017/2018, about 10 times the official forecast of HK$16.3 billion made a year ago.

The huge surplus is likely attributable to bumper revenues from land sales, profit tax and stamp duty, as well as an under-Budget expenditure.

The audit firms project reserves to stand at over HK$1 trillion by the end of March this year - roughly about 30 months of total government expenditure. This would enable investment to ensure the city remains competitive, they said.

An index measuring global competitiveness out last September put Hong Kong up three spots at sixth. Singapore slipped a notch to third while Japan slid one place to ninth.

But the city lagged in terms of innovation. Ranked 26th, it was way behind Singapore (ninth) and Japan (eighth), prompting calls for the government to ramp up efforts in this area.

EY said Hong Kong's spending on research and development (R&D) as a percentage of gross domestic product in 2015 was 0.76 per cent, lower than in places such as South Korea, Shenzhen and Singapore.

The audit firms urged the government to expand its R&D tax incentives on top of possible large tax breaks mentioned in Chief Executive Carrie Lam's maiden policy address in October.

Ms Agnes Chan, EY's managing partner for Hong Kong and Macau, suggested specific incentives, including rent concessions and lower profit and income taxes, be introduced to attract top technology or creative enterprises to the Hong Kong-Shenzhen Innovation and Technology Park.

Other suggestions focused on positioning Hong Kong as a "super connector" for the Belt and Road Initiative and the Greater Bay Area. There were also calls for favourable tax policies and incentives so more foreign and mainland firms will set up regional headquarters in the city.

Given that this is the second straight year the city will record a huge surplus, Financial Secretary Paul Chan, who is delivering his second Budget speech, will be expected to respond to public requests for "goodies" to help relieve their burden, said Ms Sarah Chan, tax partner at Deloitte China.

These include tax deductions or allowances and the lowering of stamp duties on the purchase of first self-used property.

The Hong Kong General Chamber of Commerce last month urged the Financial Secretary to make the city's competitiveness a priority and to remove unnecessary rules.

A version of this article appeared in the print edition of The Straits Times on February 16, 2018, with the headline 'HK Budget likely to push for innovation'. Subscribe