The budget surplus of the Hong Kong Special Administrative Region (HKSAR) will hit a record high of 115.6 billion HK dollars (14.82 billion U.S. dollars) by the end of the fiscal year 2007-2008, prompting the financial secretary to propose tax waivers and extra allowances Wednesday.

Presenting his first budget to the Legislative Council of the HKSAR, Financial Secretary John Tsang said the surplus will be four and a half times last year's forecast and equivalent to 7.2 percent of the southern Chinese region's gross domestic product.

Fiscal reserves will have increased to 484.9 billion HK dollars by the end of the fiscal year 2007-2008, or March 31 this year, he said.

Tsang said Hong Kong recorded an economic growth of 6.3 percent in 2007 in spite of unfavorable external environment including the sub-prime problem and credit crunch.

"In 2007 the Hong Kong economy was vibrant," he said.

It was a fourth consecutive year for Hong Kong's economy to grow at over 6 percent.

Tsang said Hong Kong registered a growth of 7.9 percent in exports and a growth of 7.8 percent in domestic private consumption spending while the latest unemployment rate fell to 3.4 percent, the lowest since the first quarter of 1998.

"The economic performance shows that our economy continues to benefit from the dynamic development of our nation and the rapid growth of the global economy. It also demonstrates the ability of our economy to withstand external volatilities," he added.

Outlining his plan for future spending, Tsang said the government would uphold the principle of "big market, small government" and would continue to invest in education, retraining, health care, among programs aimed at benefiting the public.

Tsang proposed a one-off reduction of 75 percent of salaries tax and tax under personal assessment for 2007-2008, subject to a ceiling of 25,000 HK dollars, which was 10,000 HK dollars more than the rebate cap delivered in last year's budget.

The proposal will cost the government 12.4 billion HK dollars in the fiscal year 2008-2009 and benefit about 1.4 million tax payers.

"After the reduction, about a million tax payers will pay no more than 5,000 HK dollars in tax," Tsang said.

He also proposed a one-off extra allowance of 3,000 HK dollars per person for the elderly, at a cost of 1.5 billion HK dollars (192 million U.S. dollars).

Tsang highlighted the challenge of an aging population, with government figures showing that 27 percent of Hong Kong's population will be 65 years old or above by 2033.

The financial secretary also proposed to raise the basic allowance, the single parent allowance and the allowance for the married.

"Upon implementation of the proposals, all the major allowances and tax rates will have reverted to their 2002-2003 levels," Tsang said.

Hong Kong suffered economic difficulties as the Asian financial storm hit the financial hub after its return to the Chinese motherland in 1997, followed by SARS outbreak around the year 2003, leading to low growth and high unemployment.

But its economy embarked on an upward turn since 2004, with measures by the HKSAR government to stimulate the economy as well as support from the mainland.

Tsang also announced a number of measures to help drive the economy, including exemption of duties on wine, beer and all other alcoholic beverages except spirits.

Tsang said the measure would help promote Hong Kong as a trade and distribution center for quality wine in Asia.

Looking ahead, Tsang said he expected Hong Kong to face upward inflation pressures in 2008, with economic growth at 4 percent to 5 percent, slower than the growth rates of the last four years but still higher than the trend growth for the past decade.

Tsang said he forecast a deficit of 6.3 billion HK dollars in the operating account and a deficit of 7.5 billion HK dollars in the consolidated account.

But budget surplus will occur again starting from the fiscal year 2009-2010 and the operating surplus would rise to 67.3 billion HK dollars in 2012-2013, he said.

(Xinhua News Agency February 27, 2008)