The Financial Secretary of the Hong Kong SAR, Mr. John C Tsang, delivered his fourth budget for the year 2011/12 to the Legislative Council on 23 February 2011.

Economic Performance and Outlook

In 2010, Hong Kong’s GDP grew by 6.8% in real terms. Inflation rate in 2010 was 2.4%. The unemployment rate dropped to 3.8% recently.

Mr. Tsang forecasts that in 2011, Hong Kong’s GDP growth will be 4% to 5% and the inflation rate will average 4.5%. There will be limited room for further significant decline in the unemployment rate as it is now at relatively low level.

In Mr. Tsang’s revised budget estimates for 2010/11, there will be a consolidated surplus of HK$71.3 billion. It is because the revised estimates for operating revenue and capital revenue are HK$301.5 billion and HK$73.3 billion respectively (the total revenue is HK$374.8, HK$82.8 billion higher than the original estimate). Government expenditure for 2010-11 is HK$303.5 billion, HK$13.7 billion less than the original estimate. By 31 March 2011, Hong Kong fiscal reserves are expected to reach HK$591.6 billion.

Mr. Tsang estimates that in 2011/12, total government expenditure will reach HK$371.1 billion and total government revenue will be HK$375 billion. As such, there will be a surplus of HK$3.9 billion and the fiscal reserves are estimated at HK$595.5 billion by end of March 2012.

We summarize the 2011/12 budget highlights as follows:-

Highlights of the Budget

In the 2011/12 budget, the following changes are proposed:

(i) An increase in Dependent Parent/Grandparent Allowance ("DPGA") and the Deduction Ceiling for Elderly Residential Care Expenses ("ERCE")

DPGA for maintaining parents/grandparents aged 60 or above will be increased from HK$30,000 to HK$36,000, the additional allowance for taxpayers residing with their parents/grandparents will be increased from HK$30,000 to HK$36,000. The allowance for maintaining parents/grandparents aged 55 to 59 will be increased from HK$15,000 to HK$18,000. Besides, the additional allowance for taxpayers living with their parents/grandparents will also be increased from HK$15,000 to HK$18,000.

The deduction ceiling for ERCE in relation to taxpayers?parents/grandparents admitted to a residential care home will be raised from HK$60,000 to HK$72,000.

(ii) An increase in Child Allowance

Increase both the child allowance and the additional one-off child allowance in the year of birth by 20% to $60,000.

Apart from the above, there is no proposal to change Salaries Tax, Profits Tax and Property Tax:-

Salaries Tax

The personal allowances and deductions will be as follows:

Allowances and Deductions 2011/12 HK$ 2010/11 HK$

Personal allowances: Single 108,000 108,000 Married 216,000 216,000 Single parent 108,000 108,000 Child 1st to 9th child - Year of birth 120,000 100,000 - Other years 60,000 50,000 Dependent parent/grandparent Aged 60 or above - not residing with taxpayer 36,000 30,000 - residing with taxpayer 72,000 60,000 Aged 55 to 59 - not residing with taxpayer 18,000 15,000 - residing with taxpayer 36,000 30,000 Disabled dependent 60,000 60,000 Dependent brother/sister 30,000 30,000 Deductions: - Self education 60,000 60,000 - Home loan interest 100,000 100,000 - Approved charitable donations 35% of assessable income/profits 35% of assessable income/profits - Elderly residential care expenses 72,000 60,000 - Contributions to recognised retirement schemes 12,000 12,000

Marginal Rates of Salaries Tax:

The marginal tax rates and tax bands remain unchanged as follows:-

Marginal Tax Band 2011/12 Marginal Tax Rate 2010/11 Marginal Tax Rate First HK$40,000 2% 2% Next HK$40,000 7% 7% Next HK$40,000 12% 12% Remainder 17% 17% Standard rate 15% 15%

Profits Tax

The profits tax rates for companies and unincorporated businesses remain unchanged at 16.5% and 15%, respectively.

Property Tax

Property tax rate remains unchanged at 15%.

Stamp Duty

The rate of stamp duty on share transfers remains unchanged at 0.2%.

The rates of stamp duty on property (residential and non-residential) transactions are subject to the following changes:-

Property consideration 2011/12 2010/11

Up to HK$2,000,000 HK$100 HK$100 HK$2,000,001 to $3,000,000 1.50% 1.50% HK$3,000,001 to $4,000,000 2.25% 2.25% HK$4,000,001 to $6,000,000 3.00% 3.00% HK$6,000,001 to $20,000,000 3.75% 3.75% HK$20,000,001 and above 4.25% 4.25%

Note:
Subject to the enactment of the new legislation, a Special Stamp Duty ("SSD") is imposed on residential property transactions if the property is acquired on or after 20 November 2010 (i.e. the effective date to be adopted in the new legislation). The SSD is calculated based on the stated consideration or the market value of the property, whichever is higher, at the respective SSD rates based on the holding periods by the seller:
-	15% if the holding period is 6 months or less;
-	10% if the holding period is more than 6 months but for 12 months or less;
-	5% if the holding period is more than 12 months but for 24 months or less.

Other new measures
(a)	One-off measures for 2011/2012:
	(1)	Waiver of rates for 2011/12, subject to a ceiling of HK$1,500 per quarter for each rateable tenement.
	(2)	Electricity subsidy of HK$1,800 to each residential electricity account.
	(3)	Pay two months?rent for public housing tenants.
	(4)	Provide one more month of Comprehensive Social Security Assistance (CCSA) payment, Old Age Allowance and Disability Allowance.
	(5)	Injection of HK$6,000 into each MPF account with no salary ceiling.
(b)	Others:
	(6)	Increase tobacco duty by HK$0.5 per stick.
	(7)	Increase the rate of each tax band for the First Registration Tax for private cars by about 15%.
	(8)	Issue HK$5 billion to HK$10 billion worth of Hong Kong-dollar inflation-linked "iBond", a retail bond serving as an alternative investment for coping with inflation and for promoting local bond market development.
	(9)	Reserve an additional HK$100 million for making injection to the short-term food assistance services as and when needed.
	(10)	Invest in infrastructure to promote growth: the estimated capital works expenditure for 2011/12 will reach a record high of over HK$58 billion, and will exceed HK$60 billion for each of the next few year.
	(11)	Several measures to stabilize the residential property market as well as maintain a steady and adequate supply of Grade A offices.
	(12)	Continue to enhance the competitiveness of the four traditional pillar industries and promote the development of the six industries where Hong Kong enjoys clear advantages as well as wine trading. Explore new opportunities in emerging markets to promote the diversification of our economy.
	(13)	Increase expenditure to improve people’s livelihood, in particular, in education, social welfare, health care and community building.
	(14)	Strengthen co-operation with Guangdong Province, Macao, Taiwan and other regions in various aspects to sharpen Hong Kong’s competitive edge in the global market.
	(15)	Support small and medium enterprises (SMEs) by increasing the total guarantee commitment under SME Loan Guarantee Scheme substantially to HK$30 billion.