Hong Kong Budget Econ 100 Introduction to Economics Section 3 Group 2

Group members Lam Ah Kuen Chau Yik Cheung Tai Chi Fai Chan Sin Yu Cheung Mei Lin Mak Tin Lok

Economic Performance GDP registered a growth of 7.3 % in 2005

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

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

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

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

Why Practicing Goods and Services Tax Tax ??

The Reasons are… Our existing public finances’ expenditure is rigid and revenue is unstable Important revenue items: Land premiums and investment income are volatile The problems of narrow tax base The Government need revenue items to offset the volatility of the others

How the Government working out the details of GST Follow the principle of maintaining low and simple tax regime Provide tax refunds to visitors and allow importers Propose relief and compensatory measures Reduction of other taxes,

The timetable for practicing GST A public consultation will be launched in the middle of this year It will last about nine months A report will be prepared the proposals will be submitted for consideration by the Government of the next term

CountryAustraliaSingaporeCanada Started Year of Tax Tax Rate 10%5%7% Any Refunds to TravelersYesYesYes Economic Condition The old sales tax is unfair, outdated, ineffective, complex, penalize exports and discourage investment. High sales in 1993 and the first quarter But a dramatic drop 9% in April, But a dramatic drop 9% in April, The economy had got a high budget deficit for few years. GST Revenue (Year-on-year % change) *Keep a positive increase* *Keep a positive increase* *Keep a positive increase* *Keep a positive increase* *Keep a positive increase* *Keep a positive increase* The information of GST of the countries: Australia, Singapore and Canada

Disadvantages 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 payer  No commitment 5.Although tax base is widening, the procedures is more complex  Higher administrative cost. Higher administrative cost in controlling the tax escapers and the legal trading activities.

Disadvantages (Cont ’ d) 6.Decrease the customers’ shopping desires  damage 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 companies  they may closed. 11.Definition of the necessities, is it including newspaper and television? 12.Crowding-Out Effect.

Advantages 1. 1.Widen the tax base  increase the government income 2. 2.Based on the concept of “ Pay by Yourselves ” Stabilizing the government income  contrary to the negative growth rate The progresses of trading involves the accounting work  enhance the accounting industry 5. 5.The local leavers should take their social responsibilities to pay for themselves According the Singapore case, the introduction of GST brought the negative effect was short-lived.

Survey Survey

The background of the survey (from Democratic Alliance for the Betterment) The Date: 27/1/06-6/2/06 The means: random in telephone Target: above 18 The number of people: 1405 The number of questions: 13

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

Analysis

Family income and their preference of imposing GST

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

The end Thank you!!