F.4 Economics

Basic Analysis on the 2005/2006 Budget

Name : ______Class : ______Class no. : ______

The Financial Secretary, Mr Henry Tang, delivered the 2005/2006 Budget speech at the Legislative Council yesterday. The speech has already been uploaded onto the web page . Visit the web page or get a leaflet to have a look on the highlights of the current year 2005 – 2006 budget. The following questions may help you to understand more about the Budget.

Part I Basic Information of the Budget

(a)What is a budget?

A budget is basically an account showing the estimated ______and estimated ______of the government in a year.

(b)What is the main theme of the budget? (There is always a slogan for the budget, what is it?)

(c)What are the main proposals on government revenue?

(d)What are the main proposals on government expenditure?

Part II Demand and supply analysis on a few proposals

A.Introduction of “Green” taxes

“During this year's Budget consultation exercise, I floated the idea of a tax on plastic bags. We all know that plastic waste is generally non-biodegradable. A staggering number of plastic bags are used by Hong Kong people. Each day the plastic waste dumped in landfills amounts to 1064 tonnes, equivalent to over 33 million plastic bags. Every day on average, therefore, each citizen disposes of nearly five plastic bags.” said Henry Tang, the Financial Secretary. One of the Budget Highlights is the investigation of introducing “green” taxes. One of the taxed items mentioned is plastic bag.

How would the introduction of “plastic bag” tax reduce the use plastic bags? Suppose the tax is a per-unit tax and is paid by the sellers, explain with the aid of a demand and supply diagram the change of market price, quantity transacted and total revenue in the plastic bag market.

If not using plastic bags, are there any other goods that may be affected? Use demand and supply analysis to explain the effects on the market price, quantity transacted and the total revenue of the good(s) being affected.

B.Relieving People’s Tax Burden

“In preparing for this year's Budget, I have heard many calls for an increase in the allowances for dependent parents and children. …… As a relief measure, I propose to introduce two new allowances for taxpayers taking care of dependent parents or grandparents aged between 55 and 59. They will be granted a basic allowance of $ 15,000 a year, with an additional allowance of the same amount if their parents or grandparents are residing with them.

I understand that Hong Kong people have high expectations of their children and attach great importance to their education. Moreover, the cost of living is rising, so the burden of raising children is rather heavy. I therefore propose to increase the child allowance from $30,000 per child to $40,000.” said Henry Tang.

  1. What is the relationship between “tax” and “disposable income”(可用收入)?
  1. The change in income is one of the factors affecting the demand for goods. “An increase in disposable income will necessarily increase the demand of a good.” Do you agree? Explain.
  1. The increase in tax allowance aims to relieve the tax burden of the taxpayers, and at the same time, stimulate consumption in the economy. Explain, with the aid of a diagram, the effects of an increase in tax allowance on the general goods and services market.
  1. This is a challenging question. The increase in tax allowance may help in solving the problem of unemployment. Why?

Part III Comments on the Budget 2005/06

  1. Do citizens support the Budget? What are the common views towards the Budget? Cut few pieces of newspapers on the space provided.
  2. At the end of the page, write a few lines sharing your thoughts on the budget.

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