DEMOCRATIC PARTY PUTS FORWARD 10 POINT BUDGET PROPOSAL IN FIRST POLITICAL PARTY MEETING WITH GOVERNMENT ON 1999-2000 BUDGET

The Democratic Party met today with Financial Secretary Donald Tsang to offer the party's budget proposals. The DP is the first party to meet with the Financial Secretary regarding the government's submission of the 1999/2000 budget to the Legislative Council. The DP put forward 10 specific proposals including a call for a slight deficit budget, tax relief for the middle class and small and medium business enterprises, a resumption in government land sales, tax incentives and a freeze on government rates and fees.

The Ten Point Proposal follows.

CONTACT: Sin Chung-kai, DP Economic Spokesman.

October 23, 1998

Democratic Party 10-Point Budget Proposal

1. Set Up a Reasonable Deficit Budget to Respond to Hong Kong's Economic Situation

• The DP calls for a reasonable deficit budget in 1998-2000 to restore the economy to health. In 2000-2001, the government should respond to the economic situation and the needs of the Hong Kong people while still being fiscally responsible.

Table 1. Comparison of HK SAR Government and DP Estimated Budget

Unit: 1 million	1998/1999		1999/2000
	Govt. estimation	DP Estimation	Govt. estimation	DP Estimation
Income	>258,9872	206,8624	284,180	225,1084
Expenditure	248,2482	248,2484	269,710	280,9134
Deficit/Surplus	10,7392 / (21,400) 3	(41,386)	14,470	(55,805)

1. Assuming the Government resumes land sale as scheduled, the Government income generated from land sales is estimated to drop by 50% due to the poor performance in the property market.
2. Original estimation
3. Government's estimate in June 98
4. the figure for Income and Expenditure is used to calculate the estimated deficit.

2. Resume Land Sales to Stabilize the Income of the Government

• Revenue from land sales is one of the major sources of the government income, constituting 20% of government revenue in 1997/1998. The Government should resume land sales in the first quarter of 1999 and set up a reserve price to restore stability to government income. Resumption of land sales will provide the government with an estimated $20 billion.

3. Refund 20% of Salary Tax & 20% of Profit Tax to Medium to and Small-sized Enterprises

• The Government’s budget surplus in FY 1997/1998 was $80.9 billion, $49.2 more than the Government's estimate of $31.7 billion. DP urges a refund of 20% of the salary tax in 1997/1998, and 20% refund of profit tax to small and medium sized enterprises (SMEs) whose profits are not more than $1.5 million. The estimated amount of these refunds is $10.8 billion, including $6 billion for the salary tax and $4.8 billion for profit tax.

4. Freeze Rates for the First Quarter to Lower the Burden on Owners

• Keep rates at 4.5% in 1999/2000 but rebate the rates collection raised in the 1st quarter. The average rates would then be 3.375% and the estimated loss to the Government would be $2.6 billion.

5. Freeze all Government Fees and Transportation Fares

• Freeze all Government fees for another year, including all charges for the commercially-oriented services provided by trading funds. Urge transportation authorities wholly owned by the Government (MTR, KCRC, LTR) to cut fares in 1999.

6. Tax Incentives for Technology Development and Redevelopment of Commercial Property

• Allow double-deduction for expenses on R &D to lower the profit tax.
• Increase the initial depreciation rate of commercial buildings to 20% to encourage redevelopment of old commercial buildings.

7. Tax Incentives for Worker Retraining

• Introduce tax allowance for companies which provide training to their workers, allowing double the training expenses to be deducted to encourage on-the-job training.
• Increase the personal deductible training expenses from $30,000 to $40,000

8. Tax Incentives for Energy Conservation and Protection of the Environment

• Give 100% tax deduction for energy conservation and environmental protection equipment.

9. Combine Tax Brackets to Reduce the Burden on the Middle Class

• Combine the second and third tax brackets. In 1999/2000, the 1st and 2nd tax bands should be extended to $48,000. Example: If the taxable income is $105,000, one has to pay $6,330 tax instead of $7,350, a reduction of $1,020.

10. Help the Disadvantaged

• Introduce tax allowance for employers who employ retraining graduates and disabled persons, allowing the wages paid to these employees in the first 6 months to be made tax deductible at the rate of 250%.
• Set up extra allowances for the disabled, up to one half the basic tax allowance of a single person