It is safe to assert that never has the financial chief of the Hong Kong Special Administrative Region felt as constrained as now in promoting economic growth with more investments.
The SAR’s public finances have deteriorated significantly over the past few years, with government fiscal deficits snowballing as a result of large-scale, countercyclical measures launched to bail out residents and enterprises in response to the COVID-19 pandemic.
For the sake of Hong Kong’s financial stability, which is crucial to the city’s economic well-being, and of conforming to the Basic Law mandate of “keeping expenditures within the limits of revenues in drawing up its budget”, Financial Secretary Paul Chan Mo-po is under huge pressure to improve the city’s public finances by either reining in public expenditures or generating more revenues — or, more desirably, by both simultaneously.
Chan’s proposal to implement a “reinforced version” of the fiscal consolidation program, as articulated in his 2025-26 Budget speech, is thus a logical and natural move. It aims to facilitate a cumulative reduction of government recurrent expenditures by 7 percent from now through 2027-28, which is no mean feat, given the imperative for the government to continue to pump-prime the still-stagnant economy and lay the foundation for future development.
Among the proposed expenditure-reduction measures, the attempt to scrap about 10,000 posts, or 2 percent of the total, from the civil service establishment in the next two fiscal years while striving to maintain efficient public services should be welcomed by society. This is also true with the proposal to freeze salaries of all officeholders. Other measures, such as reducing public transportation subsidies and funding for University Grants Committee-funded universities, while being controversial, conform to the principles of “user pays” and “affordable users pay”.
In terms of raising revenues, the financial chief proposed several measures, including increases in the annual license fee for electric private cars, parking meter charges, the fixed penalties for traffic offenses, and the rate of the air-passenger departure tax. While these fee adjustments also conform to the “user pays” principle and are less controversial, they are piecemeal solutions.
Ultimately, the government needs to expand its main source of revenue — taxes — by expanding the economic pie and boosting growth, which is also crucial to creating more jobs and thus enhancing residents’ economic well-being. The financial secretary laid out a road map for economic development in his new budget, promising a two-pronged approach — actively nurturing and developing new industries while enhancing the competitive edge of the city’s traditional industries at an accelerated pace.
All in all, the financial secretary has done all he can in mapping out his new budget, balancing the need to uphold fiscal prudence with that of pump-priming the economy amid the constraints imposed by worsening public finances
In terms of developing new industries, measures will be adopted to develop the healthcare industry, the cultural and creative industries, and the education industry. Measures will also be implemented to promote innovation, technology reform and artificial intelligence (AI) development. For instance, a HK$1 billion ($128.6 million) fund will be set aside for setting up the Hong Kong Artificial Intelligence Research and Development Institute to promote the application of research outcomes. Efforts will also be made to develop AI as a core industry and empower traditional industries in their upgrading and transformation with the application of AI. Measures were also proposed to strengthen the competitive edge of the city’s traditional industries, which boils down to enhancing its status as an international financial center, international trade center, international maritime center, and international aviation hub.
Given the significance of the Northern Metropolis to the socioeconomic development of Hong Kong, in terms of providing an impetus for the development of the innovation and technology industry, land for housing and reindustrialization, and enabling more in-depth integration into the Guangdong-Hong Kong-Macao Greater Bay Area, the financial chief’s commitment to prioritizing the provision of resources to the development of this mega project is sensible.
Another measure that is noteworthy, aimed at easing the burden on buyers of residential and nonresidential properties, is raising the maximum value of properties chargeable to a stamp duty of only HK$100 to HK$4 million from HK$3 million with immediate effect. This measure, which is expected to benefit about 15 percent of property transactions, will hopefully help improve sentiment at a time when the property market remains sluggish, which is a major reason behind the government’s deteriorating fiscal deficits. The government’s revenues from land premium and stamp duties have declined significantly because of the sluggishness of the property market over the past few years, which has also affected other sectors such as real estate agencies, property renovation and construction. Declining asset prices have also dampened overall consumption in the city because of the negative wealth effect.
The odds are high that the financial chief will be accused of being a tightwad for doling out far fewer “sweeties” this time compared with those in his previous budgets — in the forms of allowances to social welfare recipients, rates concessions for properties, and deductions in salaries and profits tax to enterprises and individuals. But he should be excused, given the constraints imposed by the deterioration in public finance. Moreover, residents should now be in a better situation financially as the local economy is improving, and has registered growth for two consecutive years, albeit at a much more moderate pace compared with the boom years, while the unemployment rate remains low at 3.1 percent and inflation is moderate, with the underlying consumer price inflation rate at 1.1 percent last year.
All in all, the financial secretary has done all he can in mapping out his new budget, balancing the need to uphold fiscal prudence with that of pump-priming the economy amid the constraints imposed by worsening public finances.
The author is a current-affairs commentator.
The views do not necessarily reflect those of China Daily.
