Ernst & Young, one of the world's largest accounting firms, has predicted Hong Kong will have a surplus up to HK$25 billion this fiscal year.

The firm also envisages government reserves of approximately HK$620 billion, equivalent to about 20 months of government expenditure or 34 percent of this year's GDP.

Following the release of projections by PricewaterhouseCoopers on Monday, Ernst & Young echoed the call for relief measures to help low-income people, the elderly, and the middle class.

The firm also called on the government to adopt measures to enhance Hong Kong's competitiveness by adopting financial measures, but it stood in opposition to any further government hand-outs, such as the HK$6,000 payout.

Announcing the forecast, Agnes Chan, the firm's regional managing partner for Hong Kong and Macao, said despite the recent external economic upheavals, the government recorded huge increases in revenue in the first half of the year, notably from land premiums and stamp duty.

Land premiums will top HK$91.1 billion by the end of the financial year, versus the government's projected income of HK$62.2 billion. In addition there was another HK$44 billion from stamp duty.

On the whole, Chan forecast a surplus of HK$24.6 billion, as opposed to the 2011-12 Budget, which anticipated a deficit of HK$8.5 billion for the current financial year.

"Facing uncertain economic conditions in the US and Europe and a possible slowdown, we believe a balance should be struck between returning wealth to the people by relieving their tax burden and economic hardship, and maintaining a buffer for future contingencies, which may arise upon worsening of the economic conditions," she said.

Grace Tang, the firm's tax and business services partner, said the company proposed specific measures to ease the burden on taxpayers.

Apart from increasing the tax band for salaries tax from HK$40,000 to HK$48,000, the company also proposed extending the grandparents and parents allowance to elderly residents of Guangdong province.

The company also proposed a tax reduction for the education of children, up to HK$60,000, tax reductions for medical insurance premiums, up to HK$20,000, and tax reductions for recognized retirement protection schemes, up to HK$12,000.

To address the housing needs of the middle-income group, Tang said taxpayers should be allowed to deduct from taxable income the principal of their home mortgage or rental payments up to HK$200,000 per year.

joseph@chinadailyhk.com

China Daily

(HK Edition 11/30/2011 page1)