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Hong Kong unveils budget, warns on glabal risks

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(Globalpost/GlobalPost)

Hong Kong's finance chief Wednesday unveiled a budget to kickstart growth in the city and temper property prices but warned the world economy could face headwinds from possible trade and currency battles.

During a speech interrupted by protests, Financial Secretary John Tsang also set out a series of measures to support the middle class and alleviate poverty in the first budget under an increasingly unpopular leader Leung Chun-ying.

The announcement came as data showed the southern Chinese financial hub saw growth of just 1.4 percent in 2012 and was tipped to expand only 1.5-3.5 percent this year.

In unveiling measures to boost the city's financial sector and private equity industry he warned: "The whole world will have to face wars on three fronts, namely 'currency', 'trade' and 'geopolitics'.

"As a highly open and small economy, Hong Kong will be impacted by the development of these wars to a certain extent."

His comment come after a sharp drop in the value of the yen sparked accusations of government meddling and concerns about a possible global war in which nations weaken their currencies to gains give a jolt to softening exports.

Tsang outlined plans to boost the city's financial sector, including extending profits tax exemption for offshore private equity funds, with an eye on regional rival Singapore.

He also unveiled a string of populist measures aimed at supporting the middle class and poor, while looking to address the city's chronically high property prices, which have doubled since 2009, squeezing average citizens.

Tsang vowed to increase land-supply to allow the building of more houses while quarterly rates amounting to HK$11.6 billion and covering 75 percent of properties will be waived. That follows Friday's decision to double stamp duty on second homes to 8.5 percent.

Also Wednesday Tsang said there will be a 75-percent cut in salaries tax to a ceiling of HK$10,000.

However analysts said the budget would do little to improve the lot of the middle-class or poor or give a lift to the popularity of Leung, whose government has been rocked by a series of protests since he came to power in July.

Leung, who was chosen by a committee dominated by pro-Beijing elites, has seen his support rating drop after scandals involving illegal structures at his home, and last year came close to facing impeachment proceedings.

"For the middle class there is very minimal. If the middle class is renting property -- those rates are nothing to do with him," said Philip Hung, President of the The Taxation Institute of Hong Kong.

Hung added the level of some of one off measures, such as the salary-tax cut, was lower than last year.

Despite announcing a budget surplus of HK$64.9 billion ($8.4 billion) this year -- which swelled reserves to HK$734 billion -- the new measures totalled only HK$33 billion, down from the HK$80 billion-worth introduced last year.

In a sign of the dissatisfaction with the administration, dozens of people, some dressed as the Chinese "wealth god", waved banners and shouted slogans outside government headquarters demanding handouts of HK$10,000 and more welfare spending.

"The government should give money directly to the general public so that they can make ends meet," activist Tam Kwok-kiu told AFP, adding that the government is sitting on a fiscal surplus.

Two lawmakers including radical Leung Kwok-hung were escorted out of the chambers after interrupting Tsang's speech and calling him a "liar".

Tsang said he had had been listening to the concerns of the middle class, who are faced with rising bills for rent, medical care, and supporting their parents and children.

"I agree that middle-class families should be given some support. However, as one may appreciate, it is impracticable for the government to respond to each and every demand," he said.

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http://www.globalpost.com/dispatch/news/afp/130227/hong-kong-unveils-budget-warns-glabal-risks