Public consultation on Hong Kong’s 2025-26 Budget kicked off amid the background of a snowballing deficit, projected to reach HK$100 billion ($12.85 billion) for fiscal year 2024-25. Excluding revenue from government bonds, the deficit is in excess of HK$200 billion — far exceeding the initial estimate of HK$48 billion and sparking widespread concerns about the city’s economic future.
As one of the world’s most open economies, Hong Kong is grappling with multiple challenges. Escalated geopolitical tensions, sluggish property and stock markets, and mounting social welfare expenditures have compounded significant financial pressure. Therefore, a multipronged approach is essential to address the city’s ballooning deficit. To boost revenues, the Hong Kong Special Administrative Region government could unlock the value of public assets through partial privatization and reintroducing the Tenants Purchase Scheme, while reviewing long-unadjusted public-service charges. To reduce costs, greater collaboration with the Chinese mainland in infrastructure construction and financing could enable more flexible use of resources and controlling public expenditures.
Following the lead of global examples like Heathrow Airport and DHL, leveraging public assets’ commercial potential is a promising revenue-generation solution. Likewise, Hong Kong possesses similar quality assets, one example being the Airport Authority Hong Kong. With the three-runway system poised for completion, the airport operator stands to enjoy robust growth. Its partial privatization could yield substantial government revenue and introduce a quality stock into the local financial market, thus improving the city’s short-term fiscal outlook while allowing residents a share in its prosperity.
Another notable public asset lies in public rental housing, which holds immense latent value that remains largely overlooked. For tenants, these housing units are frozen assets as they cannot be freely traded on the open market. For the government, the Housing Authority’s rental income could barely cover its recurrent expenditures, let alone recouping land costs and construction expenses. Reintroducing the Tenants Purchase Scheme could convert these underutilized resources into a fiscal lifeline. With more than 850,000 public housing units in Hong Kong, selling just half of them at an average price of HK$1 million could raise approximately HK$400 billion, equivalent to 3.5 years’ worth of land sale revenue at its historical peak. This is a triple-win move that would empower grassroots households to achieve homeownership, facilitate social upward mobility, and deliver a much-needed fiscal boost for the government.
Beyond public assets, stagnant public service fees also deserve attention. University tuition fees, for instance, have remained largely unchanged for over two decades. Although incremental increases have been planned recently — aiming to raise the cost recovery rate to 13.4 percent by the 2027-28 academic year — this still falls short of the earlier target of 18 percent. As a step forward, Hong Kong can consider adopting differential tuition rates based on the program costs, in which that of medicine is more than double that of non-laboratory programs in the 2023-24 academic year. While critics would counterargue that university education is a service and not a commodity, differential tuition rates are a common practice internationally. Considering the high earning potential of medical graduates, a modestly higher tuition fee for such high-cost degrees is acceptable.
Faced with external headwinds and internal challenges, Hong Kong needs unconventional thinking and bold policy innovations. Nevertheless, while it is natural for budget deficits and debts to be at the center of the public discourse, we must not lose sight of the bigger picture to boost economic growth, enhance competitiveness and drive structural transformation
While boosting revenue is vital, reining in expenditures is equally important. In addition to reviewing its social welfare expenditures, Hong Kong must confront its exorbitant construction costs, especially since a series of infrastructure projects in the Northern Metropolis are set to break ground. In 2024, Hong Kong was ranked as Asia’s costliest city to build in, exceeding Shanghai, Guangzhou and Shenzhen more than threefold. While the government has pledged to cut more red tape and lower costs, another viable alternative is to leverage the mainland’s world-class infrastructure expertise. Partnering with mainland construction enterprises and harmonizing industry standards could help Hong Kong to complete projects faster, better and cheaper.
Innovations to lower financing costs are also needed. Given the lengthy development timeline of the Northern Metropolis and the increased interest rates, corporates may face difficulties in securing traditional bank loans. Therefore, Hong Kong should extend collaborations with strategic financial institutions such as China Development Bank, which has supported the financing of major projects like the three-runway system and the offshore liquefied natural gas terminal. Likewise, infrastructure projects in the Northern Metropolis could benefit from medium- to long-term loans with lower interest rates. Moreover, Hong Kong could consider riding the wave of offshore renminbi bond issuances in recent years by issuing RMB bonds under the Infrastructure Bond Programme. This would secure funding for local projects at lower interest rates and reinforce Hong Kong’s position as the world’s largest offshore RMB business hub.
Faced with external headwinds and internal challenges, Hong Kong needs unconventional thinking and bold policy innovations. Nevertheless, while it is natural for budget deficits and debts to be at the center of the public discourse, we must not lose sight of the bigger picture to boost economic growth, enhance competitiveness and drive structural transformation. The government can attempt to tighten its belt, but it should not forget to invest in Hong Kong’s future.
Ryan Ip is vice-president and executive director of the Public Policy Institute, Our Hong Kong Foundation. Jason Leung is head of land and housing research at the foundation. Wenhui Jia is an assistant researcher at the foundation.
The views do not necessarily reflect those of China Daily.
