As Hong Kong unveiled its 2025-26 Budget on Wednesday, the city was standing at a critical juncture. Years of pandemic-driven deficits, global economic headwinds, and structural challenges demand bold yet pragmatic solutions. The budget, signaling fiscal discipline through measures like expenditure caps and revenue diversification, is a step toward financial stability. But sustaining Hong Kong’s competitiveness requires more than austerity — it calls for reimagining governance itself. By streamlining bureaucracy, harnessing artificial intelligence (AI), and aligning with national strategies, the city can emerge leaner, smarter, and more resilient.
Hong Kong’s fiscal challenges are well-documented. A deficit of HK$87.2 billion ($11.21 billion) for 2024-25, coupled with shrinking reserves, underscores the urgency of the need to recalibrate.
The financial secretary’s plan for tightening spending while stabilizing revenues, by putting the “user pays” principle into practice and restructuring expenses, reflects a pragmatic balancing act. For instance, the revival of tourism-driven initiatives, including an expanded list of mega-events, aligns with efforts to reignite the retail and hospitality sectors. Meanwhile, investments in Northern Metropolis infrastructure and innovation hubs signal long-term bets on economic diversification.
Yet fiscal prudence alone cannot address systemic inefficiencies. Decades of layered bureaucracy have left Hong Kong’s public sector bloated, with overlapping functions across 13 policy bureaus and dozens of departments. A 2023 Audit Commission report revealed redundancies in many government departments, where multiple agencies manage similar mandates. Consolidating roles within different departments could eliminate duplication and save billions annually. Singapore’s success in centralizing its Smart Nation initiatives under a dedicated office offers a compelling blueprint.
AI presents a transformative opportunity to modernize governance. From automating routine services to optimizing tax collection, AI could slash operational costs while improving results. Consider property tax compliance: AI-driven analytics can identify discrepancies in declarations, boosting revenue without raising rates. Similarly, chatbots handling 80 percent of routine citizen inquiries — as seen in Seoul’s AI-powered administrative services — would free staff for complex tasks.
The 2025-26 Budget is more than a ledger — it’s a road map for reinvention. By marrying fiscal discipline with technological ambition, Hong Kong can navigate its challenges while securing its role as China’s most dynamic global city. The journey demands courage to streamline, innovate, and collaborate. With prudent stewardship, the city’s famed “can-do” spirit will once again light the way forward
Hong Kong’s advantage lies in its robust tech ecosystem. Home to 10 unicorns and a thriving fintech sector, the city has the talent to pilot AI solutions at scale. For instance, predictive algorithms could enhance healthcare resource allocation, a lesson from Singapore’s AI-driven hospital bed management system during the COVID-19 pandemic. The move to set up the Hong Kong AI Research and Development Institute with an initial funding of HK$1 billion could also prioritize such public-sector AI adoption, inviting startups to co-design tools for smarter governance, aside from aiding industrial application of AI.
Hong Kong’s fiscal strategy must also align with broader national imperatives. Integration with the Guangdong-Hong Kong-Macao Greater Bay Area — a market of 86 million people — remains pivotal. The budget’s proposed measures to enable Hong Kong’s greater in-depth participation in the development of the Greater Bay Area will strengthen the city’s role as a gateway and spur its economic development. However, bureaucratic silos still hinder Greater Bay Area collaboration, so they need to be tackled.
Moreover, leveraging central government support is vital. Initiatives like the Qianhai Shenzhen-Hong Kong Modern Service Zone and the recently expanded Cross-boundary Wealth Management Connect Scheme offer revenue-generating opportunities. By positioning itself as the premier offshore hub for yuan internationalization and green bonds, Hong Kong can attract Chinese mainland capital while bolstering its fiscal buffer.
To realize this vision, the government must embrace further structural reforms in the near future. First, establish a “productivity commission”, not unlike the Department of Government Efficiency in the United States, to audit and eliminate redundant processes across departments. Second, mandate AI-adoption targets — for example, automating 30 percent of back-office functions by 2027. Third, incentivize public-private partnerships, allowing tech firms to pilot solutions in areas like traffic management or waste reduction.
Critics may argue that austerity risks stifling growth, but smarter spending — not just cuts — will define success. By channeling savings into high-impact areas (for example, tech development, and retraining programs for an aging workforce), Hong Kong can build a sustainable economic engine.
The 2025-26 Budget is more than a ledger — it’s a road map for reinvention. By marrying fiscal discipline with technological ambition, Hong Kong can navigate its challenges while securing its role as China’s most dynamic global city. The journey demands courage to streamline, innovate, and collaborate. With prudent stewardship, the city’s famed “can-do” spirit will once again light the way forward.
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.
