Hong Kong Financial Secretary Henry Tang yesterday exercised prudence in returning the surplus of the 2006-07 budget to the people and instead invested more in the future to sustain the hard-won financial gains.

In his budget speech delivered in the Legislative Council (LegCo), Tang proposed reducing the marginal rates for the second, third and top salaries tax bands by 1 percentage point and extending the home loan interest deduction period from seven to 10 years.

Tang said he could not afford to give bigger tax concessions because the financial recovery was hard-earned and he would not do things to just win short-lived applauses.

Hong Kong saw a robust 7.3 percent GDP growth last year in the wake of an 8.6 percent growth in 2004. The region's operating and consolidated accounts had recorded surpluses of HK$5.8 billion and HK$4.1 billion, respectively, in 2005-06.

The three fiscal targets that he set for in his debut budget speech in 2004, too, had been fulfilled three years ahead of schedule.

"First, operating expenditures in 2004-05 and 2005-06 were controlled within HK$200 billion," he said. "It is the first time in eight years that surpluses have been recorded in the operating and consolidated accounts... while the ratio of public expenditure to the GDP has been contained below 20 percent since 2004-05."

As to the reasons for not lowering salaries tax rates to the 2002-03 level as urged by many political parties and citizens, Tang explained that would have cost the government HK$7 billion a year and caused about 100,000 people fall out of the tax net.

Also, he did not opt for any tax rebates because that would only have brought about some short-lived benefits.

By lowering the marginal salaries tax rates, he expected three quarters of taxpayers to benefit.

To ease the burden of home-owners, he extended the home loan interest reduction period by three years but the ceiling remained HK$100,000 a year in an initiative that would cause HK$1.2 billion a year.

Answering questions on the "miserly" tax concessions at a press conference later, he said that as financial secretary, he had a duty to fulfill Basic Law obligations of financial prudence and fiscal balance.

"If we offer more, the operating account would be in the red in 2006-07... We will not do things to turn surplus into deficit for the sake of short-lived applauses," he stressed.

Tang has given considerable thought to helping the disadvantaged groups. From 2006-07, an extra HK$100 million will be allocated for the disabled, elderly, children and family support services.

Besides, Tang announced he would publish a consultation paper on the goods and services tax in mid-year and consult the public. He would compile a report as soon as possible for the consultation and would submit it to the next term government.

For the next five years, the government would earmark HK$29 billion a year for infrastructure projects and estimated 14,000 jobs would be created each year.

Projects left behind by the two former municipal services councils and large projects under planning such as the Hong Kong-Zhuhai-Macao Bridge and the Central Government Complex at the Tamar site will be speeded up, he added.

Chief Executive Donald Tsang has hailed the 2006-07 Budget delivered, saying it strikes the right balance in promoting economic growth by investing vigorously in Hong Kong's future, providing tax relief to ease the middle class' burden and taking good care of the underprivileged.

Tsang said Hong Kong's robust economic rebound over the last two years and the effectiveness of the government's cost-saving measures have enabled it to balance the budget three years ahead of schedule.

Now the economy has revived, Mr Tsang said the government will continue to move Hong Kong steadily forward so the community at large can share the benefits of prosperity.

"The essence of strong governance is making the most of all opportunities that arise, while people-based governance aims at building a harmonious society. I encourage the community to join hands to achieve these goals," he said.

Stephen Cheung, chair-professor of finance and economics at the City University, called the budget a plain one that brought no surprises.

With a mere HK$4.1 billion surplus, he agreed it was not the right time to make big tax cuts because that would simply cause more people to fall out of the tax net.

(China Daily HK editionFebruary 23, 2006)