HONG KONG — The United States is shrinking its military and debating whether to cut social spending, raise taxes or both. European governments from Greece to Ireland are struggling to maintain payments to the unemployed and retirees. Japan is borrowing heavily to pay for earthquake reconstruction and care for a graying population.
And then there is Hong Kong.
Financial Secretary John Tsang announced a budget for the coming fiscal year that cuts income taxes, corporate taxes and real estate taxes. Household electricity bills will be subsidized, and people living in public housing will receive two months’ free rent.
Education spending will jump 7 percent. Senior citizens will receive an extra month’s pension payment; government hospitals will expand; and 10 billion Hong Kong dollars, or $1.29 billion, will be put in a special fund to help the needy buy medicine.
Perhaps most impressive, the budget is forecast to be roughly in balance – and Hong Kong’s budget forecasters have a reputation for consistently underestimating surpluses. The city, an autonomous region of China ever since Britain handed it back in 1997, has accumulated a rainy-day fund equal to more than a year and a half of government spending.
Hong Kong is running another large budget surplus for the current year, which ends on March 31, despite giving 6,000 dollars to each adult permanent resident.
Economists attribute the bonanza to a series of factors: tight limits on senior citizen spending, no military spending and an economy that grew 5 percent last year, mostly because Hong Kong has cashed in on China’s economic boom.
Mainland Chinese real estate buyers have driven up housing prices as they seek political stability — and, sometimes, safety from mainland tax collectors and fraud investigators. Rising apartment prices have pushed up government revenue from taxes on real estate transactions and from the sale of government land for further construction projects.
Retail sales surged 23 percent here through November of last year, mostly because nearly 100,000 mainland visitors a day come to Hong Kong. Most of them head straight for the stores.
They come not because Hong Kong stores are any nicer — practically every luxury chain now has shops in mainland China. With sky-high rents to pay in a highly congested city, stores also charge more here for a wide range of goods than in the United States and many other countries.
Hong Kong’s attraction instead has been as a tax haven to avoid the 17 percent value-added tax in mainland China, plus steep import and consumption taxes that can add another 10 to 50 percent to the price tag there. The tax savings on a single Louis Vuitton bag can cover round-trip airfare from practically any city in China.
President Obama announced Jan. 19 that the United States would liberalize visa rules for affluent tourists from China and Brazil in particular. Because of a combination of proximity and easy visa rules, Hong Kong attracts nearly 30 times as many heavy-spending mainland Chinese visitors as the United States.
The flood of prosperous mainlanders has provoked considerable angst in Hong Kong, particularly among the young, many of whom struggle to find jobs these days, especially if they are not fluent in Mandarin, a different Chinese tongue from the Cantonese that most residents speak here.
“They don’t like the idea of having all these rich showing off how much money they have, and spending heaps of money on all these luxurious products,” said Paul Tse, the Hong Kong lawmaker who represents the tourism sector.
Populists in Hong Kong have also been assailing the government for being less generous than Western governments to those who are poor, elderly or both. Hong Kong is one of Asia’s most expensive cities, but elderly residents typically receive 1,090 dollars a month, or $140, plus 2,820 dollars a month if they are needy.
K.C. Chan, Hong Kong’s secretary of financial services and Treasury, said that the tax cuts and extra spending in the upcoming budget were aimed at offsetting possible harm to the city’s economy from a slowing global economy. The government is predicting that growth will slow this year to between 1 percent and 3 percent.
Even that level of growth will be possible only because of a 1.5-percentage-point stimulus from the budget, Mr. Chan said.
Cathy Chu, Mr. Chan’s deputy for Treasury, said that the biggest reason for Hong Kong’s fiscal strength was a combination of strong economic growth together with self-restraint in the share of economic output that is spent by the government, which is held to about 20 percent.
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And here is the link to the full budget speech 2012 - 2013: