HK: Asian budget handouts
Published: February 22 2006 14:08 | Last updated: February 22 2006 21:16
The world may applaud the rise of Asia’s middle-class, but it is still sometimes a pretty miserable place to be.
Hong Kong’s self-styled “sandwich class” has, at various times over the past few decades, been squeezed out of the housing market; seen savings eroded by inflation; and, once affordable property came along, suffered negative equity.
This week, however, was sweet for the middle classes. Singapore doled out handouts to lower and middle-income citizens in its annual budget, even going into a rare deficit in order to do so. Hong Kong followed by unveiling salary tax cuts in its budget yesterday. But the handouts were not of sufficient magnitude to boost consumption or property markets. So what explains the sudden largesse?
Singapore’s US$1.6bn cash give-away – to be dispensed among roughly half the city state’s population – is aimed at quelling social tensions: income disparities and other changes stemming from globalisation. Singapore can afford the luxury of playing benefactor to its citizens, having used previous budgets to sharpen its competitive edge for foreign investment. Indeed, officials cite a Canadian study that ranks Singapore’s effective corporate tax rate as the lowest among the 36 countries surveyed.
For its part, Hong Kong is rebalancing income streams: even as it cuts salary taxes, it plans to introduce a sales tax. A more diversified tax base is sensible: the tax take has long suffered structural problems, hence the tendency to lurch from fiscal surplus to deficit. So far, so good for the middle classes and the investors who bank on them. But it is telling that neither government gave too much away – a hint that there are lurking evils, from bird flu to rising interest rates, that could yet spoil the rosy outlook. |
