Financial Secretary Paul Chan Mo-po delivered the 2025-26 Budget on Feb 26. He introduced a strengthened fiscal consolidation plan, which includes a cumulative 7 percent reduction in recurring government expenditures by the 2027-28 fiscal year, saying this strengthened fiscal consolidation plan provides a clear target, enabling the government to gradually restore a balanced operating account within the incumbent government’s tenure.
Chan painted a vision in which the operating account could return to balance by the time the 2027-28 Budget is presented in February 2027. However, the cumulative deficit gap will not be filled within the current government’s term. Chan projected a deficit of HK$87.2 billion ($11.22 billion) for the 2024-25 fiscal year and HK$67 billion for 2025-26. To date, the cumulative fiscal deficit since this administration took office has exceeded HK$300 billion (including the issuance and repayment of government bonds). If the 2025-26 budget deficit is indeed as projected, the cumulative shortfall will approach HK$400 billion. Understandably, many are concerned about how this gap will be addressed.
Historical precedent shows that when land-sale revenues fall sharply, the Hong Kong Special Administrative Region government finds itself in dire straits. Chief Executive John Lee Ka-chiu and Chan are aware of this challenge, and they have made efforts to identify new economic growth drivers for Hong Kong. These include exploring new revenue streams in the traditional financial sector and investing heavily in the Northern Metropolis as a hub for innovation and technology (I&T), aligning with the innovation-driven development of the Lok Ma Chau Loop area. The plan also seeks to leverage the Guangdong-Hong Kong-Macao Greater Bay Area (GBA)’s strengths in scientific research and manufacturing.
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However, transformation takes time, as does realizing the benefits of new growth drivers. As such, it is difficult to immediately resolve structural issues within this government’s tenure. Since new revenue sources may not yield quick results, the government has no choice but to “strictly control expenditures”. Chan acknowledged that this is “work that must be done”.
There have been proposals from various sectors to address the largest category of recurring expenditures — salaries of officeholders. This includes wages for politically appointed officials, civil servants, and statutory-body employees. This is a complex and sensitive issue, requiring the government leadership to keenly assess the political landscape, summon political courage, skillfully navigate challenges, and harness political capital. For instance, the leadership could lead by example by cutting its own salaries first, while simultaneously freezing the pay of civil servants and statutory-body employees, before implementing actual pay cuts for civil servants in the following fiscal year.
As Lee Fong-chung, chairman of the Federation of HKSAR Civil Servants, told the media: “Salaries are an important component, but job satisfaction and a sense of mission are equally important. Naturally, people may not be happy if wages cannot be raised, but will it impact morale? I don’t think it will necessarily reach that level since everyone understands the current economic situation.” A phased approach — first cutting top officials’ salaries, then freezing civil servant pay, followed by eventual pay cuts — could be the most effective way to achieve a balance in recurring expenditures and gradually fill the fiscal deficit while structural issues remain unresolved.
As a side note, although I have been eligible for the HK$2 elderly transportation concession as a senior citizen over 60 years old, I support the financial secretary’s decision to reduce the subsidy (while retaining the same pool of beneficiaries) in light of Hong Kong’s current challenges. However, there are criticisms from some sectors (not all of whom are elderly) over the perceived inconsistency of reducing benefits while not simultaneously cutting salaries for top-ranking officials. The government must tread carefully and avoid allowing public discontent to be exploited by opposition forces.
The government’s ambition to drive Hong Kong’s transformation through technology aligns with global trends and the broader push toward new productivity paradigms. However, in addition to offering substantial funding and tax incentives to support I&T industries, deregulation is crucial. Take the example of the low-altitude economy and drones. Chan proposed strengthening collaboration with the Chinese mainland in this area.
Shenzhen, just across the border, is a global hub for consumer drones and is actively developing its low-altitude economy. Hong Kong, meanwhile, has imposed multiple restrictions on drones since the last administration, citing safety concerns — e.g., a maximum vertical flight altitude of 91.4 meters (above ground); requiring drones to remain within the operator’s line of sight; and prohibiting night flights. These restrictions hinder the growth of the low-altitude economy.
As early as a decade ago, drone hobbyists demonstrated that a single-charge flight could travel from Sai Kung in New Territories East to Repulse Bay, proving that the drone batteries available at the time could support such distances (a practice known as “range testing” in the industry). Thus, Hong Kong is well-positioned to develop its low-altitude economy, but this requires the government to loosen restrictions.
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Encouragingly, Chan mentioned in the Budget that the Civil Aviation Department will propose legislative amendments by midyear to be presented to the Legislative Council. As a drone enthusiast myself, I urge the government to accelerate this process. Technology evolves rapidly, and Shenzhen is moving forward at full throttle. Hong Kong cannot afford to lag behind. In regulating drones, Hong Kong should learn from Shenzhen’s speed and decisiveness.
Drone deregulation is just one example. The broader question remains: What other regulations might be hampering the development of I&T? The financial secretary could emulate the United States’ Department of Government Efficiency by inviting external expertise to identify and address barriers to Hong Kong’s I&T growth, ensuring timely deregulation.
For Hong Kong’s financial stability, the government must commit to eliminating the deficit and reducing its overreliance on land-sale revenue. At the same time, Shenzhen has demonstrated that I&T can fuel a city’s economic development. Hong Kong must work hard to catch up. Beyond funding allocations and tax incentives, deregulation and dismantling administrative obstacles are essential steps forward.
The author is a former information coordinator of the Hong Kong Special Administrative Region government and a member of the Chinese Association of Hong Kong and Macao Studies.
The views do not necessarily reflect those of China Daily.
