Hong Kong’s surprise surplus: were numbers ‘distorted’ to avoid deficit? Economists question adding proceeds from bonds, fund transfers
- Hong Kong government has made a habit of ‘underestimating surpluses, overestimating deficits’
- Economist calls for more transparent profit tax regime and a crackdown on corporate tax evasion
Financial Secretary Paul Chan Mo-po’s explanation for how Hong Kong turned an anticipated budget deficit into a surplus amounted to a “distortion” of public accounts that helped the government justify its tax policies and boost investors’ confidence, economists said.
Some took issue with including the proceeds from government bonds and the movement of funds as revenue, resulting in a surplus of HK$18.9 billion (US$2.42 billion) for 2021-22.
Some also expressed unease at the city’s drastic increase in recurrent expenditure and warned that Chan’s new top-up tax targeting large multinationals might not generate revenues as substantial as the administration expected.
“We need to make our salary tax and profit tax more progressive,” said Iris Pang, chief economist for Greater China at Dutch bank ING. “The government also needs to make our profit tax regime more transparent and crack down on corporate tax evasion.”
A year ago, Chan estimated that the government was looking at a deficit of HK$101.6 billion in 2021-22, a third consecutive year of spending more than it earned. Instead, he announced a surplus when he delivered his budget speech on Wednesday.
Asked to explain at a press conference afterwards, Chan conceded that there was a surplus only because of expected income from green bonds issued by the government.
“We issued more than HK$35 billion in bonds. If we discount that, we would have recorded a deficit,” he said.
