Hong Kong’s economy has struggled to regain its footing since the COVID-19 pandemic, and the numbers paint a troubling picture. This fiscal year, the city’s budget deficit is projected to soar to around HK$100 billion ($12.84 billion) — more than double the previous forecast of HK$48.1 billion in the budget presented in February 2024. For the fifth time in recent years, Hong Kong is grappling with deficits, raising concerns about the possibility of a structural fiscal deficit. If left unchecked, this could trigger a downgrade in Hong Kong’s credit rating, undermining its financial stability. As the financial secretary prepares to deliver the upcoming budget later this month, bold measures are needed — both to cut costs and to bolster revenue — ensuring the long-term health of the city’s public finances.
On the expenditure side, the Hong Kong Special Administrative Region government must take decisive action. A 5 percent reduction in recurrent spending should be the immediate target, serving as a road map to achieving fiscal balance. With an established civil service workforce of 190,000, there is undoubtedly room for streamlining. Advances in artificial intelligence and other technologies offer an opportunity to reduce reliance on personnel without compromising efficiency. The government should be actively exploring ways to integrate these technologies into its operations.
Public-sector pay is another area ripe for review. Civil servants in Hong Kong typically enjoy more generous compensation packages than their counterparts in the private sector. In a time of fiscal strain, shared sacrifices are essential. A freeze on civil servant salaries this year is both reasonable and necessary. For context, a 3 percent pay increase for civil servants costs the government HK$8.7 billion. Halting such raises could yield significant savings.
Moreover, the government should reconsider its hiring practices. While the approved civil service headcount is 190,000, the actual workforce has hovered around 170,000 for years — indicating that current staffing levels are sufficient to maintain day-to-day operations. Delaying new hires by six months could further ease financial pressures without disrupting the delivery of public services.
Hong Kong has invested heavily in promoting its “event economy” and tourism. Programs like the Mega Arts and Cultural Events Fund and the “M” Mark system subsidize high-profile events to attract visitors. While the intentions are commendable, such subsidies have increasingly sparked public criticism over their effectiveness and perceived waste of taxpayer money. To address these concerns, the government should incorporate “economic impact” as a key performance metric when approving funding for such events. This would ensure that taxpayer dollars are spent on initiatives that deliver tangible economic benefits to the city.
Cost-cutting alone won’t close the fiscal gap; new revenue streams are equally critical. One obvious area for reform is traffic-related fines, which have remained stagnant for years. Compared to other regions, Hong Kong’s penalties for traffic violations are strikingly low. For example, fines for speeding range from HK$320 to HK$1,000, whereas in New South Wales, Australia, they range from A$145 ($91.30) to A$4,643. Increasing these fines would not only enhance deterrence but also contribute additional revenue to government coffers.
Hong Kong has long prided itself on its financial resilience and adaptability. Now is the time for the city’s leadership to demonstrate those qualities once more, ensuring that Hong Kong not only tackles its current challenges but emerges stronger and more sustainable for the future
Hong Kong’s financial and real estate sectors remain the backbone of its economy, and the government should explore innovative ways to revitalize these industries. One promising idea is the introduction of an “IPO Connect” program, which would allow investors in Hong Kong and the Chinese mainland to participate in each other’s initial public offerings. As a pilot program, this initiative could begin with limited quotas and safeguards to manage risks. For instance, it could target IPOs with a minimum fundraising size of HK$10 billion, while capping mainland participation at 20 percent of the total issuance.
Similarly, the government should consider a “Property Connect” program to breathe life into Hong Kong’s sluggish real estate market. Such a program, developed in consultation with the central government, could allow mainland investors and enterprises to purchase Hong Kong properties within a controlled framework. By setting strict quotas and implementing closed-loop mechanisms, risks could be mitigated while injecting much-needed activity into the property market.
The challenges facing Hong Kong’s public finances are daunting but not insurmountable. What’s needed is a pragmatic and courageous approach that combines fiscal discipline with forward-looking policies. Cutting unnecessary expenses, modernizing government operations, and expanding revenue streams are all critical steps toward restoring fiscal health.
Hong Kong has long prided itself on its financial resilience and adaptability. Now is the time for the city’s leadership to demonstrate those qualities once more, ensuring that Hong Kong not only tackles its current challenges but emerges stronger and more sustainable for the future. With the right measures in place, the city can safeguard its reputation as a global financial hub and secure a brighter economic horizon for generations to come.
The author is the convener at China Retold, a member of the Legislative Council, and a member of the Central Committee of the New People’s Party.
The views do not necessarily reflect those of China Daily.
