Liberals Back Stock Tax Rise Despite Market Plunge

The business-friendly Liberal Party has hailed a decision by Financial Secretary Paul Chan to increase taxes on stock trading, despite a negative reaction to Wednesday's budget announcement from the market.

Party leader Felix Chung told RTHK's Hong Kong Today programme that the initiative was one of its pre-budget suggestions to the financial chief as booming markets made it a quick way of raising money without harming the economy.

"The money from the north is backing up the financial market in Hong Kong," Chung said, referring to the flow of cash from mainland investors into the Hong Kong Stock Exchange

"The other reason is: there is a great conflict between China and the US, and you know the US government is not allowing certain Chinese enterprises to work in the financial market in the United States," he told RTHK's Janice Wong.

'It means the Chinese corporations have come back to Asia; the only place they come back to is the Hong Kong financial market.

"So under these two scenarios, I still believe the financial market in Hong Kong will be booming in the coming year, so I don't think that increase will eventually hurt the financial market, but certainly it will increase the income for the Hong Kong government."

Chan announced in his budget on Wednesday that the stamp duty on stock trading would increase by 30 percent, from 0.1 to 0.13 percent of the transaction value.

Share in Hong Kong Exchanges and Clearing fell by 8.8 percent on the news, while the market closed down three percent.

HKEX expressed surprise at the move but urged investors not to overreact. Asset managers and lawmakers questioned whether the tax would undermine Hong Kong's competitiveness.