Hong Kong Hong Kong Budget Budget

2006 - 20072006 - 2007

Econ 100 Introduction to EconomicsSection 3 Group 2

Group membersGroup members

Lam Ah Kuen 053037 Lam Ah Kuen 053037

Chau Yik Cheung 053035Chau Yik Cheung 053035

Tai Chi Fai 053042Tai Chi Fai 053042

Chan Sin Yu 053072Chan Sin Yu 053072

Cheung Mei Lin 053061Cheung Mei Lin 053061

Mak Tin Lok Mak Tin Lok 055108 055108

Economic Performance Economic Performance GDP registered a growth of GDP registered a growth of 7.3 %7.3 %  in 2005  in 2005

(8)(6)(4)(2)02468

1012141618

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Year

Gro

wth

rat

e %

Growth rate in HK (1962-2005)

the unemployment rate fell from 8.6 % in the unemployment rate fell from 8.6 % in mid-2003 to a four-year low of mid-2003 to a four-year low of 5.2 %.5.2 %.

Unemployment rate in HK(1977-2005)

00.5

11.5

22.5

33.5

44.5

55.5

66.5

77.5

88.5

Year

Unem

plo

yment

rate

(%

)

Government's CommitmentGovernment's CommitmentEstimates of expenditure:Estimates of expenditure: total government total government expenditure for 2006–07 will be expenditure for 2006–07 will be $245.6 billion$245.6 billion. .

Expenditure

32%

20%18%

14%

16%Education

Social Welfare

Health

Security

Infrastructure

Funding to help disadvantaged groups would be Funding to help disadvantaged groups would be increased the recurrent by about increased the recurrent by about $100 million$100 million..

Funding for disadvantaged groups

HK$20 Million HK$27 Million

HK$30 Million

HK$20 Million

rehabilitation service

family support

home care services

Comprehensive ChildDevelopment Service

Funding for people who are capable ofworking

HK$60 Million

HK$20 MillionHK$150Million

the IntensiveEmploymentAssistance Projects

employmentassistance measures

district-based povertyalleviation work

•An additional funding of about $230 million to strengthen efforts to assist those in need who are capable of working .

Why Practicing Goods and Why Practicing Goods and Services Tax Tax ?? ??

The Reasons are…The Reasons are…

Our existing public finances’ expenditure is Our existing public finances’ expenditure is rigid and revenue is unstablerigid and revenue is unstableImportant revenue items: Land premiums Important revenue items: Land premiums and investment income are volatileand investment income are volatileThe problems of narrow tax baseThe problems of narrow tax baseThe Government need revenue items to The Government need revenue items to offset the volatility of the othersoffset the volatility of the others

How the Government working out the details of GST

Follow the principle of maintaining low and Follow the principle of maintaining low and simple tax regimesimple tax regime

Provide tax refunds to visitors and allow Provide tax refunds to visitors and allow importers importers

Propose relief and compensatory measures Propose relief and compensatory measures

Reduction of other taxes, Reduction of other taxes,

The timetable for practicing GST

A public consultation will be launched in A public consultation will be launched in the middle of this year the middle of this year

It will last about nine months It will last about nine months

A report will be preparedA report will be prepared

the proposals will be submitted for the proposals will be submitted for consideration by the Government of the consideration by the Government of the next termnext term

CountryCountry AustraliaAustralia SingaporeSingapore CanadaCanada

Started Year of TaxStarted Year of Tax 20002000 19941994 19911991

Tax RateTax Rate 10%10% 5%5% 7%7%

Any Refunds toAny Refunds toTravelersTravelers

YesYes YesYes YesYes

Economic Economic ConditionCondition

The old sales tax The old sales tax is unfair, outdated, is unfair, outdated, ineffective, ineffective, complex, penalize complex, penalize exports and exports and discourage discourage investment.investment.

High sales in 1993 High sales in 1993 and the first quarter and the first quarter 1994.1994.

But a dramatic But a dramatic drop 9% in April, drop 9% in April, 1994.1994.

The economy had The economy had got a high budget got a high budget deficit for few years.deficit for few years.

GST Revenue GST Revenue (Year-on-year % (Year-on-year % change)change)

Keep a positive Keep a positive increase*increase*

Keep a positive Keep a positive increase*increase*

Keep a positive Keep a positive increase*increase*

The information of GST of the countries: Australia, The information of GST of the countries: Australia, Singapore and CanadaSingapore and Canada

The Changes in GST Revenue of Australia

31257

2738923854

15644

0

5000

10000

15000

20000

25000

30000

35000

1998 - 99 1999 - 00 2000 - 01 2001 - 02 2002 - 03 2003 - 04

Year

$ m

illio

n

The Changes in GST Revenue of Singapore

2165

2957

3470

2134212119951657

0500

1000150020002500300035004000

1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05

Year

$ m

illio

n

The Changes in GST Revenue of Canada

29758

2490928248 2828624990

227902068419461

0

5000

10000

15000

20000

25000

30000

35000

1996 -97

1997-98

1998-99

1999 -00

2000 -01

2001 -02

2002 -03

2003 -04

2004 -05

Year

$ m

illio

n

DisadvantagesDisadvantages

1. Sales Tax is an indirect tax (Regressive Tax System).

2. It contrary to the law of equity and the resources allocation.

3. Difficulties in the implementation.

4. No trading relationship between the government and the tax payerNo commitment

5. Although tax base is widening, the procedures is more complexHigher administrative cost. Higher administrative cost in controlling the tax escapers and the legal trading activities.

Disadvantages (Cont’d)Disadvantages (Cont’d)

6. Decrease the customers’ shopping desiresdamage to the image of ”Shopping Paradise”. Hong Kong is the freest city in the world, it will hit its reputation.

7. It is the not a good way to raise the government income since the people will not willing to shop under a bad economy.

8. Hard to introduce in the street market.

9. Shortage in accountants may appear in the initial stage.

10. Increase in expenditure to the local small companiesthey may closed.

11. Definition of the necessities, is it including newspaper and television?

12. Crowding-Out Effect.

AdvantagesAdvantages

1. Widen the tax base increase the government income

2. Based on the concept of “ Pay by Yourselves”.3. Stabilizing the government income contrary to the

negative growth rate.4. The progresses of trading involves the accounting

work enhance the accounting industry5. The local leavers should take their social

responsibilities to pay for themselves.6. According the Singapore case, the introduction of

GST brought the negative effect was short-lived.

SurveySurvey

The background of the surveyThe background of the survey(from Democratic Alliance for the Betterment)(from Democratic Alliance for the Betterment)

The Date: 27/1/06-6/2/06The Date: 27/1/06-6/2/06

The means: random in telephoneThe means: random in telephone

Target: above 18Target: above 18

The number of people: 1405The number of people: 1405

The number of questions: 13The number of questions: 13

Questions:Questions:

Do you agree imposing GST?Do you agree imposing GST?

How to use (tax cuts or others How to use (tax cuts or others government administrative fee, return the government administrative fee, return the tax collected before, increase investment tax collected before, increase investment of capital construction, increase in public of capital construction, increase in public welfare) the surplus budget from different welfare) the surplus budget from different class of income?class of income?

AnalysisAnalysis

People's view towards GST

0%

10%

20%

30%

40%

50%

60%

2005 2006

Disagree

Agree

Family income and their Family income and their preference of imposing GST preference of imposing GST

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Agree Disagree No Idea

%

Under $10,000$2-30,000

Above $40,000

The suggestions of how to use the The suggestions of how to use the surplus budget from different class surplus budget from different class

of incomeof income

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Tax Cuts Return the Tax Invest more inconstruction

Increase in publicwelfare

Under $10,000

$1-20,000

Above $40,000

The endThe end

Thank you!!Thank you!!