Hong Kong's Financial Secretary Paul Chan Mo-po referenced the city's growing economy while announcing a "reinforced version" of the government's fiscal consolidation program targeting reduction of recurrent expenditure by seven percent through 2027-28.

With the city’s budget deficit in the red for the third year in a row, the financial secretary said the level of deficit will decline year‑on‑year from 2026‑27 onwards. He said the 2024‑25 revised estimate on total government revenue was HK$559.6 billion, lower than the original estimate by 11.6 percent. Hong Kong will record a deficit of HK$87.2 billion for 2024-25, Chan said, with fiscal reserves estimated to drop to HK$647.3 billion by the end of March.

“Strictly containing public expenditure is a must,” said Chan.

He said the civil service posts will be reduced by 2 percent each in 2026-27 and 2027-28 with 10,000 posts expected to be cut by April 1, 2027. The pay of top executive officials, the legislature, the judiciary and District Council members will be frozen in the coming year.

Chan cited technological innovation as "our core engine" with transformation and innovation harnessed to fast-track the high-quality development of Hong Kong's economy.

Key plans to boost revenue  

As widely anticipated, Chan said the government will explore regulating basketball betting activities, pointing out that illegal basketball betting turnover reached HK$70-HK$90 billion last year.  

In another move aimed at boosting revenue, air passengers will be required to pay a higher departure tax of HK$200 per passenger from the current HK$120, starting from the third quarter of 2025‑26. This is expected to bring in additional annual revenue of HK$1.6 billion.

This apart, an application fee of HK$600 will be charged under various talent and capital investor admission schemes with immediate effect. The visa fees, to be charged based on the duration of the limit of stay, will be raised to HK$600 or HK$1,300. This is expected to increase revenue by about HK$620 million annually.

A global minimum tax rate of 15 percent on large multinationals with an annual consolidated group revenue of at least EUR 750 million is envisaged with the imposition of Hong Kong minimum top‑up tax. This is expected to bring in annually HK$15 billion starting from 2027-28.

Economy

He forecast that Hong Kong's economy will continue to grow moderately this year, rising by 2-3 percent in real terms for the year and by 2.9 percent a year in real terms from 2026 to 2029.  The average underlying inflation rate was forecast to be 2.5 percent a year.

"Under 'one country, two systems', Hong Kong is the only place in the world that combines the global advantage and the China advantage," he said.

Artificial intelligence

Citing Third Plenary Session of the 20th Central Committee of the Communist Party of China that affirmed the positioning of scientific and technological innovation as a core area of development, Chan said the edge of 'one country, two systems' and the city's internationalized characteristic will be leveraged to develop Hong Kong into an international artificial intelligence (AI) exchange and cooperation hub.

He said HK$1 billion had been set aside for the establishment of the Hong Kong AI Research and Development Institute.

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Total HK$100 million had been set aside for a scheme benefitting some 400 enterprises. Chan said funding of up to HK$250,000 each on a one-to-two matching basis will be made available to enterprises to introduce smart and advanced technologies into existing production lines.

Developing core strengths

Hong Kong seeks to leverage its strategic positioning as the "three centers and a hub" with a special focus on the Association of Southeast Asian Nations (ASEAN) and the Middle East with the Hong Kong Exchanges and Clearing Limited (HKEX) set to step up promotion there.

Chan said the government will regularize the issuance of tokenized bonds. The linkage of faster payment systems between the mainland and Hong Kong is expected to be launched in the middle of this year.  

The third InnoHK cluster is envisaged, he said, focusing on research in advanced manufacturing, energy and materials development.

This apart, HK$3.7 billion has been allocated to the Hong Kong Park of the Hetao Cooperation Zone which upon completion is expected to generate 52,000 job opportunities and contribute HK$52 billion to the Hong Kong economy annually.

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Investment pacts with Saudi Arabia, Bangladesh, Egypt and Peru are being explored, said the finance chief, while talks were on with 17 countries on Comprehensive Avoidance of Double Taxation Agreements.

Also, the Hong Kong Trade Development Council will launch the "E-Commerce Express" in collaboration with large-scale e-commerce platforms to provide Hong Kong enterprises with one-to-one consultation services and thematic seminars.

To support local businesses, the government will inject HK$1.5 billion into existing funds.  

The Hong Kong Monetary Authority will launch a new 100 billion yuan trade financing liquidity facility for banks. A new law will soon allow stamp duty payable on the transfer of stocks at renminbi counters, to be paid in yuan, said Chan.

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Tax exemption will be provided for green methanol used for bunkering.

He proposed setting aside HK$215 million to install the port community system for better maritime data flow and said the Hong Kong Maritime and Port Development Board will be set up this year.

He said the government plans a new round of Research Matching Grant Scheme totaling HK$1.5 billion to attract to boost research endeavors.

Tourism and green push

Chan pledged to allocate $1,235 million to the Hong Kong Tourism Board (HKTB) in the coming year. Special focus will be on developing Middle East and ASEAN markets to attract more high-end visitors.

A subsidy scheme of HK$300 million will be launched in the middle of the year to facilitate the installation of 3,000 fast chargers across Hong Kong by 2030 to be used by 160,000 additional electric vehicles.

Land supply and housing

Chan said 80,000 private housing units were expected in the coming five years with 65 percent of the land coming from the Northern Metropolis and the Tung Chung New Town Extension.

The total public housing supply in the coming five years is expected to reach 190,000 units while the potential supply of firsthand private units will be around 107,000 units in the next three to four years.

Youth and welfare

The financial secretary said 4,000 short‑term internship placements in bureaux and departments and public organizations will be arranged for tertiary students.

The number of vouchers under the Residential Care Service Voucher Scheme for the Elderly will be increased by 1,000 to 6,000. The number of vouchers under the Community Care Service Voucher Scheme for the Elderly will be increased by 1,000 to 12,000, involving an annual expenditure of about HK$1,710 million and HK$900 million, respectively.

Chan said the Mandatory Reporting of Child Abuse Ordinance will come into effect next January with an additional annual provision of HK$186 million to support child abuse victims and their families and allied services.

Besides, 1,280 additional day community rehabilitation and home care service places will be provided for persons with disabilities, involving an additional annual expenditure of about HK$160 million. 

Scotching speculation over the HK2 scheme for the elderly and people with disabilities, the concessionary fare will be changed to "$2 flat rate cum 80 percent discount", entailing HK$2 for trips with fare below or equal to HK$10 with each beneficiary required to pay the full fare after 80 percent discount, concessionary trips limited to 240 per month.

Also from June, the Public Transport Fare Subsidy Scheme threshold will be raised from the current monthly HK$400 to HK$500.

In his concluding remarks, Chan said he had full confidence in and high expectations for the future of Hong Kong with the blue picked for the cover of this year's budget symbolizing "limitless potential". "Riding on the wave of technology transformation, we stay bold in taking forward reform and ready to embrace innovation."