Hong Kong's fiscal surplus predicted to hit HK$62b

This is 6 times more than the previous forecast.

Apparently, the fiscal outcome for FY2014/2015 looks set to surprise on the upside again.

According to a research note from Bank of America Merrill Lynch, revelations last month that the government has already recorded a fiscal surplus of HK$35.2bn in the first nine months of FY2014/2015 prompted the group to expect the current year’s fiscal surplus to probably be robust at about HK$62bn, or 2.8% of GDP.

The report noted that this is six times more than the government’s previous expectation of a small surplus of HK$9.1bn.

That surplus would raise HK’s fiscal reserves to HK$808bn (36.1% of GDP, or roughly 24 months of government expenditure).

Here's more from Bank of America Merrill Lynch:

Over the past years, the government has had a tendency to underestimate its revenue substantially. This year will probably be no exception – we expect revenue from stamp duties of property/stock transactions, land sales, salaries and business taxes to far exceed the government’s original forecast for FY2014/ 2015.

For the first nine months of FY2014/ 2015, total fiscal revenue was HK$319.9bn. Thanks to the government’s extra effort to cool the property market, total stamp duties alone may amount to HK$70bn this year (vs HK$41.5bn last financial year), a 68.7% yoy rise.

In particular, the double-stamp duty, which targets investors who own more than one property, will likely contribute close to HK$20bn. Land premium will also continue to be a big source of revenue. According to the Lands Department, the government has sold 32 pieces of land in the first 10 months of this financial year, with land proceeds totaling HK$42.7bn.

Overall, we expect total revenue to rise to HK$479.9bn, higher than the budgeted revenue (HK$430.1bn) by about HK$49.8bn. On the expenditure side, for the first nine months of FY2014/ 2015, total fiscal expenditure was HK$284.7bn, nearly 69% of the expenditure (HK$411.2bn) budgeted for this fiscal year.

According to our estimate, the total expenditure will probably increase to HK$417.9bn, higher than the budgeted expenditure by about HK$6.7bn. As a result, we project a consolidated budget surplus of HK$62bn, vs the original budget surplus of HK$9.1bn.