HK$6,000 handout 'a long time coming'
Hongkongers are rubbing their hands with glee over the HK$6,000 handout promised by the government yesterday, yet few have any idea of how and when the money will arrive in their pockets.
Announcing the news to wild applause, financial chief John Tsang Chun-wah only said 'a platform would be established' for permanent Hong Kong residents aged 18 and over to receive the money. He revealed no further details.
A person familiar with the situation said the handout would be available to about six million people, including Hongkongers living abroad. While many people have already started planning how to spend the sudden windfall, the insider said the money may not be paid out soon.
'It will take months before the money arrives in your pocket,' he said.
The government has yet to decide on the cut-off day for the age calculation 'but as a principle, we want to cover as many people as possible'.
He said the government did not want to send cheques to people directly.
'We are working out a mechanism so that people will get the money and save it. And of course, there will be incentives for people to save the money rather than spend it.'
He said the government was seriously considering the Singapore model, in which the money is deposited into an account that recipients register with the government.
The government would prefer people to save the money rather than spend it because of inflation fears. That was the rationale behind Tsang's original budget when he opted for a HK$6,000 injection into MPF accounts because a direct tax rebate could add to inflationary pressure.
Tsang stood by that view yesterday, even as he announced the handout and tax reductions of up to another HK$6,000. But economists said the HK$36 billion giveaway was like a drop in the bucket. Hong Kong's inflation is driven mainly by outside factors - namely a strong yuan, a weak US dollar and rising commodity prices.
Professor Leo Sin Yat-ming, of the marketing department at Chinese University, said internal factors were clearly not a major inflationary factor.
'The biggest problem for the city is the depreciating US dollar, and that the prices of everything we buy from other places are getting higher,' Sin said.
Added to this, the yuan had risen more than 20 per cent against the US dollar since 2004 with many believing that the Chinese currency will rise further.
'With the yuan appreciation alone, the prices of many of the foods that we import are rising as well. The situation gets even tougher for us as the price of food and many other items on the mainland are also rising at an astonishing pace,' Sin said.
Hong Kong is the world's top net food importer with most of the basics such as vegetable and meat supplies dependent on mainland imports.
'We should pray for mainland food prices and yuan appreciation to increase at a slower pace rather than worry about the impact of handouts on inflation. It almost means nothing,' Sin said.
While the inflation rate hit 3.6 per cent last month and the government estimated that it would rise to 4.5 per cent for the whole year, Sin expected the cash handouts to add just 0.5 percentage points to that figure.
'The HK$36 billion will not entirely flow into the market, as many studies have shown that only half of such handouts will be spent and add pressure to inflation,' he said.
Irina Fan Yuen-yee, a senior economist with Hang Seng Bank, agreed that only half the handouts would flow into the economy.
'About half of this money will be saved by people,' she said. 'I cannot say how much inflation will increase because of it but the GDP will for sure increase by 1 per cent with HK$18 billion added to the GDP estimation of HK$1.74 trillion.'
Law Ka-chung, chief economist and strategist from the Bank of Communications, also agreed that the impact of the handouts on inflation would be minimal.
'The effect of tax rebates and handouts is only short term, based on many studies elsewhere, including in the US,' she said. 'And we have to remember that not all of the money will be spent.'
