This reduction in expenditure may lead to some adjustments in public services, but the Hong Kong Special Administrative Region government is committed to maintaining service quality and availability.
Despite the challenges, the government’s strategic budget for the current fiscal year (2024-25) is expected to result in a deficit of about HK$87 billion ($11.18 billion), a significant improvement from the deficit of HK$252 billion in 2020-21.
With a clear goal in mind, Chan is making significant strides toward balancing the budget. According to his projections, the city’s operating account will “largely achieve balance” in 2025-26 and return to a surplus from 2026 27, a promising sign for the future.
For many years, economists around the world marveled at Hong Kong’s ability to keep to balanced budgets and, in most cases, end up with a modest surplus. During the past 28 years, Hong Kong recorded a surplus budget 18 times and finished in the red 10 times.
The record surplus was in the 2017-18 fiscal year with HK$232 billion, while the record deficit was after the COVID-19 pandemic and the riots in 2020-21, with HK$252 billion in the red.
Economists frown upon large surpluses as indicative of insufficient spending on public facilities, so a mild deficit was preferable when drawing up a national/regional budget.
Balancing the books is a difficult job, especially in keeping with Article 107 of the Basic Law principles, which states: “The Hong Kong Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product.”
Chan explained that the new budget comes in two parts: operational accounts and capital accounts. Operational expenditure relates to the day-to-day operations of Hong Kong, including the running of the civil service. Capital expenditures include infrastructure and land development issues, such as the Northern Metropolis and a new rail link between Shenzhen and Hong Shiu Kiu.
Chan is bullish about the city’s economic future, noting that during the past year, there have been a number of positive developments in Hong Kong. And the economy has grown for two consecutive years. He noted that the employment market has been stable, while inflation remains moderate, and efforts to attract talent and enterprises have been remarkably successful.
“The successive staging of large-scale international mega events has been coupled with a notable increase in visitor arrivals. And sentiment in the stock market continues to improve alongside a generally buoyant atmosphere across the city,” he said.
However, getting to a balanced budget means tightening the belt on expenditure, and the civil service is the obvious priority target. This applies to everyone from the chief executive down, including members of the Legislative Council, the Judiciary, and district councils. All will experience a pay freeze. The civil service will be trimmed by 2 percent, meaning 10,000 civil service posts will be deleted by 2027. These measures are necessary to reduce the deficit and ensure the long-term financial stability of Hong Kong.
He also mentioned numerous other measures in his budget, including cuts in taxation benefits and transportation allowance for the elderly, as well as increases in airport departure tax and other fees.
Land sales have always been one of the mainstays in Hong Kong’s public finances with investment in land development being essential for the SAR’s future prosperity. The Northern Metropolis, located between Yuen Long and Sheung Shui, is taking shape, and occupants will start taking residence toward the end of the year. This will be boosted with a Hong Kong-Shenzhen Western Rail Link being planned to connect Qianhai in Shenzhen with the Hung Shui Kiu /Ha Tsuen new development area, making it the second rail link between Hong Kong and its northern neighbor.
Also, in developing the New Territories, Chan said he was earmarking HK$3.7 billion to expedite the infrastructure and public facilities of Phase 1 of the Hong Kong Park development in San Tin. Meanwhile, to earn extra income, the government will identify suitable land parcels for private development proposals later this year to expedite the development by leveraging market forces. Upon completion of the whole Hong Kong Park, its annual contribution to Hong Kong’s economy is expected to reach HK$52 billion, and about 52,000 job opportunities will be created.
Overall, despite large deficits in the budget during the past and in the next couple of years, the future looks bright, with the money spent going to a good cause to maintain Hong Kong’s competitive edge in world trade and scientific development.
The author is a former chief information officer of the Hong Kong government, a PR and media consultant and veteran journalist.
The views do not necessarily reflect those of China Daily.
