Basic Law Article 107 mandates that the Hong Kong Special Administrative Region maintain fiscal balance, yet the HKSAR government has been grappling with budgetary deficits for four consecutive years. This has led to a significant contraction of fiscal reserves, from HK$1.17 trillion ($150.26 billion) in 2019 to an estimated $633 billion by March 2025. The time is ripe for Hong Kong to restore fiscal balance by increasing revenue and reducing expenditures. To achieve this, we must think innovatively and outside the box. Here are some suggestions on how to generate revenue and reduce expenditures.
To increase revenue, the government should heed Our Hong Kong Foundation’s advice to sell public housing units to tenants who can afford them. This could generate billions of dollars and would be welcomed by many affluent tenants currently facing threats of vigorous eviction enforcement. Ownership would also enhance their sense of belonging and security, as demonstrated in Singapore. It would be a win-win arrangement.
Second, the government currently holds over 74 percent of MTR Corp. It could sell a portion of its holdings without losing control of this public entity. For instance, selling just 10 percent of its holdings could bring in HK$15 billion. Similarly, with the airport’s third runway now operational, the Airport Authority should be attractive to investors, and the company could be publicly listed on the Hong Kong stock market, thereby recovering a significant amount of government investment.
Third, considering that Singapore’s top marginal tax rate is 24 percent — much higher than Hong Kong’s top rate of 17 percent for high-income individuals — there is room for Hong Kong to raise its marginal tax rate.
Fourth, it is imperative to step up law enforcement to detect tax evasion cases. Many retailers and self-employed individuals tend to reject e-payments in favor of cash, and are more likely to evade taxes. The Inland Revenue Department should install an AI program to analyze the characteristics of retailers and restaurants, such as location, size, number of staff, and records of wholesale supplies. By comparing this data with standard tax levies, likely tax evaders could be identified for further investigation.
Additionally, learning from the recent success of the Housing Department in recovering public housing units from affluent tenants, a similar campaign encouraging public reporting tied to a reward system for such reports could be implemented.
Finally, most countries have a sales tax, which is generally accepted. Singapore charges a standard goods and services tax rate of 9 percent without losing its appeal to tourists. Therefore, there is a strong case for Hong Kong to establish a sales or capital gains tax as part of a tax reform.
To reduce expenditures, a critical review of manpower should follow the introduction of any new IT program. For instance, the Leisure and Cultural Services Department launched a HK$500 million e-booking system in 2023, reducing the need for staff previously engaged in physical bookings. Yet its staff number has remained unchanged, apparently unaffected by this expensive new labor-saving system.
Second, we should always strive to utilize technology to reduce manpower needs. On the Chinese mainland, traffic wardens are rarely seen issuing parking tickets because a high-tech system automatically photographs illegally parked cars and levies penalties. Hong Kong should explore how IT and AI can be used to reduce manpower requirements, thereby increasing efficiency and reducing costs in budget management.
The financial secretary should implement a policy mandating that government departments undertake all tasks within their sphere of responsibility and refrain from outsourcing projects to external consultants except under extraordinary circumstances. This approach would yield substantial cost savings and foster a learning culture within departments
Third, the government should reconsider its reliance on external consultants for feasibility studies on public works projects. For example, last year, the Highways Department sought HK$1.13 billion for an evaluation study of a proposed highway as part of the Northern Metropolis project. This expenditure could be saved by utilizing in-house expertise within the Highways Department and other related departments. The reliance on external consultants is a remnant of colonial practices that primarily benefit Western companies while relieving public officials of responsibility over construction projects.
Similarly, the Department of Justice should reduce its practice of outsourcing judicial review cases to private lawyers, often incurring high legal fees. Utilizing in-house counsel for these cases would be more efficient and cost-effective, saving public funds while enhancing their courtroom experience and career development.
The financial secretary should implement a policy mandating that government departments undertake all tasks within their sphere of responsibility and refrain from outsourcing projects to external consultants except under extraordinary circumstances. This approach would yield substantial cost savings and foster a learning culture within departments.
The lowering of the age limit from 65 to 60 for the HK$2 discounted public transport subsidy program three years ago has led to an alarming rise in public expenditures, reaching HK$4 billion last year. This policy should be reviewed. Since the program was introduced 12 years ago, considering inflation, it would be reasonable to increase the fee to HK$3. Additionally, introducing a two-tier system — charging HK$4 for those aged 60-64 — would be appropriate, as many in this age group are still working.
Finally, despite the budget deficit, consideration should be given to distributing consumption vouchers to stimulate local retail. Instead of including this in the budget, the vouchers could be funded through the annual profits of the Exchange Fund. In 2023, the Exchange Fund recorded an investment return of 5.2 percent, amounting to HK$212.7 billion. There is no reason a portion of this return — say, 10 percent — cannot be distributed among residents based on need, as they are the “shareholders” of the fund. This approach would not aggravate the budget deficit nor erode the fund and would enhance residents’ loyalty to the government, fostering a sense of belonging and national unity. Furthermore, it would alleviate financial pressure on many vulnerable individuals during the ongoing economic recovery. However, the government should implement stricter requirements to ensure that the consumption vouchers are used exclusively for local consumption.
The author is an honorary fellow of HKU Space, and a council member of the Chinese Association of Hong Kong and Macao Studies.
The views do not necessarily reflect those of China Daily.
