Hong Kong’s 2025-26 Budget, presented by Financial Secretary Paul Chan Mo-po on Wednesday, struck a delicate balance between fiscal discipline and strategic investment. As the city grapples with a HK$87.2 billion ($11.22 billion) deficit — lower than the initially projected HK$100 billion — the budget not only seeks to stabilize public finances but also offers a vision for long-term growth. 

With the Hong Kong Special Administrative Region government facing its third consecutive year of deficits, the road ahead requires careful management of public resources, alongside bold moves to position the city as a global leader in innovation and technology.

Among the most notable adjustments is the rethinking of Hong Kong’s public transport subsidy system. The government has announced cuts to subsidies for public transport in a bid to tighten fiscal spending. While these changes will undoubtedly impact daily commuters, the reality is that Hong Kong’s transport system needs reform. 

The HK$2 transport concession for seniors, which benefits over 2 million elderly passengers, will see new restrictions — such as monthly ride caps. This is a calculated move to ensure that resources are allocated more efficiently, ensuring sustainability without overburdening taxpayers.

Public transport subsidies have ballooned over the years, and such measures are long overdue. While cuts to public services are often unpopular, they are necessary for long-term sustainability. If anything, this is a wake-up call for residents and businesses alike to think about how to make our city more efficient and future-ready. The transport sector, traditionally a major drain on public funds, will now have to adapt to the new fiscal reality.

Civil Service reform: rightsizing for fiscal health

The government’s announcement to freeze civil servants’ salaries and reduce 10,000 positions over the coming years is a necessary but difficult decision. Civil service reform is always a sensitive topic, particularly in Hong Kong, where the public sector has long been a pillar of stability. However, with the city’s fiscal deficit deepening, these steps are critical to managing public spending. This year’s budget indicates that the government’s recurrent expenditures will be closely scrutinized, and reductions in personnel costs are an unavoidable part of this strategy.

Instead of simply cutting jobs, the reform process should focus on improving efficiency within the public sector, ensuring that civil servants can still deliver essential services in a more-streamlined manner. By freezing pay and trimming nonessential positions, the government can direct more resources toward areas that fuel economic growth and innovation.

Investing in talent: the key to a future-ready workforce

Education and talent development remain central to Hong Kong’s future economic prosperity. The budget includes targeted investments in expanding educational opportunities, particularly in sectors where there is both a demand for skilled labor and a need for innovation. The increase in medical student quotas, for instance, aims to address Hong Kong’s pressing healthcare needs, particularly as the city’s aging population grows.

Beyond healthcare, there is a clear emphasis on the development of a workforce capable of driving Hong Kong’s knowledge economy. By investing in STEM education, digital skills, and professional development, the government is preparing its workforce for the demands of the future. These investments in human capital will ensure that Hong Kong remains competitive, attracting top talent to drive the city’s growth in emerging industries such as artificial intelligence (AI), biotechnology, and green technologies.

AI center: catalyzing HK’s innovation hub

Perhaps the most exciting aspect of the budget is the announcement of a HK$1 billion investment to establish the Hong Kong AI Research and Development Institute. This new institute is a bold step in Hong Kong’s bid to become a global hub for AI research and innovation. In a world increasingly dominated by AI, the establishment of such a center is crucial to Hong Kong’s strategy of diversifying its economy and positioning itself as a leader in technology.

The AI institute is not just about keeping up with global trends. It is about forging a path to the future, creating a platform for collaboration between academia, startups, and international tech firms. This investment signals that Hong Kong is serious about being at the forefront of the next wave of technological innovation. By focusing on AI, Hong Kong can strengthen its position in key industries, from healthcare and finance to logistics and education.

The development of AI-related technologies promises to transform businesses and improve the quality of life for residents. By focusing on AI, Hong Kong will unlock new opportunities for investment, job creation, and economic diversification. It is a key initiative in transforming Hong Kong from a finance hub into a technology powerhouse.

Regulating sports betting: a step toward modernization

In an interesting development, the 2025-26 Budget also signals a move toward the legalization and regulation of sports betting. This is a much-needed modernization of Hong Kong’s gambling industry, which has long been plagued by illegal activities. By establishing a legal framework for sports betting, the government stands to generate significant revenue while also curbing illicit gambling, which costs the city both economically and socially.

The estimated revenue from legalizing sports betting could easily surpass HK$3 billion annually. This presents a win-win situation: A new source of revenue for public services and infrastructure projects, while also creating a safer, more-regulated environment for gamblers. However, this move will require careful implementation and strong regulatory oversight to prevent exploitation and ensure that vulnerable groups are protected.

Tourism and innovation: capitalizing on new trends

Tourism has always been one of Hong Kong’s economic pillars, and the 2025-26 Budget seeks to reignite this sector with a focus on innovation. The government’s commitment to enhancing the “study in Hong Kong” initiative, with a focus on international students, is an astute move. With an expected increase in the number of international students, this aligns with the broader goal of transforming Hong Kong into an educational hub for the region.

But tourism in the 21st century is no longer just about sightseeing; it’s about creating personalized, tech-driven experiences. By investing in AI and related technologies, the government is positioning the tourism sector to embrace the future. AI-powered travel experiences, such as virtual tours and personalized itineraries, will help make Hong Kong a leader in the global travel market. The integration of AI in tourism will not only help boost visitor numbers but also enhance the visitor experience, making it more interactive and engaging.

Northern Metropolis: a vision for the future

The Northern Metropolis, perhaps the most ambitious project in the 2025-26 Budget, is set to transform the northern regions of Hong Kong into a vibrant, economically diversified hub. This initiative will focus on creating new housing and business opportunities, with a particular emphasis on technology and innovation. This is an essential step in addressing the city’s housing crisis and providing long-term economic stability.

The Northern Metropolis will offer new job opportunities in high-tech industries, residential developments, and green spaces, all aimed at easing the pressure on the more-crowded urban areas. If successful, this project could provide a much-needed lifeline to a city struggling with space constraints and a rapidly increasing population. However, like any large-scale development, it will require careful planning and coordination between the public and private sectors to ensure that it delivers on its promises.

Conclusion: a city determined to evolve and thrive

Hong Kong’s 2025-26 Budget is a pragmatic response to the city’s fiscal challenges, underpinned by strategic investments in innovation, human capital, and infrastructure. While the measures to reduce public spending are necessary for fiscal sustainability, they are balanced by forward-thinking investments in AI, education, and tourism. The establishment of the AI Research and Development Institute is a standout initiative that positions Hong Kong as a leader in technological innovation, while the push to host global events and expand educational tourism signals a new chapter for Hong Kong’s economy.

Despite the challenges, this budget paints a picture of a city determined to evolve and thrive in an increasingly complex global landscape. By investing in its people, technology, and infrastructure, Hong Kong is not only addressing its current fiscal needs but laying the foundations for a prosperous and sustainable future. The road to recovery may be long, but with the right investments and strategies, Hong Kong is poised to emerge stronger than ever.

The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.

The views do not necessarily reflect those of China Daily.