Hong Kong Financial Secretary John Tsang is expected to announce tax rebates and other concessions when he delivers his maiden budget speech tomorrow, analysts said.
In his address for 2008/09, Tsang will focus on returning cash to the city's seven million people with the more than HK$100 billion (US$12.8 billion) surplus the government expects to record in the current year.
The record figure derives from higher taxes collected from salaries and profits, stamp duties on stock market gains and a windfall from land sales. It will be the fourth straight year that the territory has had a budget surplus.
"Our financial situation is very good. We can go on for two years even without any income," said Tim Lui, a tax partner at consulting and auditing firm PricewaterhouseCoopers (PwC).
"We expect that (Tsang) will return wealth to the people. We will see reductions and rebates for taxpayers as well as help for the low-income groups," he said.
PwC expects fiscal reserves to hit HK$474.3 billion at the end of March, equivalent to two years of government spending.
Irina Fan, senior economist at Hang Seng Bank, also predicted tax measures will be on top of Tsang's agenda for the new fiscal year.
"We have such a large surplus, that's why a lot of people are expecting him to focus on tax reductions," she said.
The government had said it would cut both the salaries tax and corporate profits tax by one percentage point from the financial year to March 2009.
The financial chief may announce a "plethora of measures and one-off goodies" at up to HK$37.8 billion, or 36 percent of its estimated HK$105 billion surplus for the current fiscal year to March, PwC said.
They may include tax rebates on profits and salaries, a reduction in the top marginal tax rate and stamp duty on certain property transactions, increases in some personal allowances and the waiver of government concession rates.
Hong Kong's booming economy - which has been growing at an average annual rate of 7.5 percent between 2004-2006 - has lifted earnings of companies and individuals, boosted the stock market and raised property prices, allowing the government to increase tax collections and command better prices for its land holdings at auctions.
"The government can afford to increase spending in different areas, such as infrastructure, education, health and care for the elderly," Quian Wong of JP Morgan said.
"The government is likely to emphasize spending to help the poor, who suffer most from the recent pick-up in consumer price inflation," he added. There could also be initiatives to reduce air pollution.
Hong Kong's inflation rate currently stands at a near 10-year high due to rising food and oil prices.
Financial Secretary Tsang, who was appointed in July last year, may increase the monthly pension of those aged 70 and above to HK$1,000 dollars from HK$705, the South China Morning Post reported recently, citing unnamed government sources.
However, some analysts cautioned him against giving too much away because of its fragile revenue base.
With a majority of government income coming from profit and income taxes as well as from land sales, the city's revenue base is narrow.
"All of these key revenue items vary significantly with economic growth. Hence, while revenue growth could be strong in good times, a steep decline, leading to budget deficits, is also likely in a sharp slowdown," said Kim Eng Tan, associate sovereign director at credit rating agency Standard and Poor's.
Amid the uncertainty in global financial markets resulting from the US subprime crisis and a credit crunch, Lui of PwC predicted caution from Tsang.