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By Susan Fenton
HONG KONG, Feb 25 (Reuters) - Hong Kong's government said its economy will shrink this year for the first time since the Asian financial crisis more than a decade ago, but offered few handouts to taxpayers in the face of the global economic crisis.
Having announced a series of fiscal stimulus steps in recent months, and with government finances under pressure as the financial centre's economy contracts, Financial Secretary John Tsang was reluctant to spend a lot more, although he did announce a rebate of up to HK$6,000 ($769) for 2008/09 income taxpayers.
"We are somewhat disappointed, it was not a bold budget," said Guy Ellis, a partner at PricewaterhouseCoopers. "Unlike in some other budgets around the world, it was not particularly aggressive. There was very little assistance for SMEs, which are a critical part of the economy here."
As taxpayers would not receive the rebate until this time next year, there would be no immediate economic boost, he said.
Anti-government legislators, led by maverick Leung Kwok-hung or "Long Hair", disrupted Tsang's speech half-way through, arguing he was not doing enough for the underpriviledged.
Credit ratings firm Standard & Poor's said Hong Kong's creditworthiness would weaken as a contracting economy would depress government revenue, but it retained a stable outlook on its AA plus rating.
The Financial Secretary stressed the importance of maintaining competitiveness, announced a programme to sell government debt and confirmed it would amend tax laws in 2009/10 to promote Islamic finance.
HIGH HOPES
Roddy Sage, head of financial group AFP, was unimpressed: "There was nothing of any detail in this budget," he said. "What is he going to do to give us a head start on our competitors when the economy picks up?"
Sage said he had been hoping for tax breaks for fund management companies; lower taxes for small companies; and support for small companies to keep jobs along the lines of a subsidy scheme for staff retention in Singapore.
Hong Kong tipped into recession in the third quarter of last year. The recession deepened in the fourth quarter as gross domestic product, or the value of all goods and services produced, shrank a seasonally adjusted 2 percent from the previous quarter, its worst performance since the second quarter of 2003 when the SARs outbreak shattered confidence.
"Given the fluid economic situation and the varying effects of stimulus measures being taken around the world, it is likely that the global economy will take some time to return to normal," Tsang said in his speech. "It is hard to predict accurately now when recovery will come about." He said 2009 would be difficult.
For a graphic display of Hong Kong quarterly GDP, click on https://customers.reuters.com/d/graphics/HK_GDP0209.gif
For budget highlights, click on
The government posted a provisional HK$4.9 billion fiscal deficit for 2008/09, which would widen to a HK$39.9 billion deficit for 2009/10.
But Ellis said that might be optimistic. "Tsang is forecasting a 30 percent drop in profits tax (in 2009/10) but is assuming salary tax collection will be at the same level, even though in the past few months we've seen significant numbers of taxpayers requesting to defer tax payments."
Tsang said the government would largely achieve fiscal balance by 2013/14.
For 2008 as a whole, the economy grew 2.5 percent, slowing sharply from a 6.4 percent expansion in 2007.
Weak consumption in the United States and Europe is hammering Hong Kong exports, and the deteriorating economy is depressing consumer confidence and business investment. (Additional reporting by Alison Leung and James Pomfret; Editing by Annemarie Roantree and Jan Dahinten)