global economy

Hong Kong hands out cash, cuts duties in budget despite larger deficit

Hong Kong hands out cash, cuts duties in budget despite larger deficit

BUDGET SPEECH. Hong Kong's Financial Secretary Paul Chan delivers the annual budget address at the Legislative Council in Hong Kong, February 22, 2023.

Tyrone Siu/Reuters

Hong Kong will issue vouchers worth HK$5,000 ($637) per person to all adults in 2023, half the amount issued in 2022

HONG KONG – Hong Kong is set for back-to-back deficits but will give cash handouts and offer some help to first-time home buyers to help the economy recover from prolonged COVID-19 restrictions, the city’s government announced in its budget on Wednesday, February 22.

The global financial hub expects to record a deficit of HK$140 billion ($17.8 billion) in 2022-2023, Financial Secretary Paul Chan said, when delivering the budget to the Legislative Council. That is around 5% of gross domestic product (GDP), and more than double the HK$56 billion the government initially estimated.

He forecast another deficit of HK$54.4 billion for 2023-2024.

Chan told legislators the city was at the beginning of an economic recovery, no longer shackled by stringent COVID measures that have isolated it from the rest of the world for years.

“I believe that Hong Kong’s economy will visibly recover this year, and I remain positive,” Chan said, noting he would take a “moderately liberal” fiscal stance this year to sustain the impetus for economic recovery.

“However, the economic recovery is still in its initial stage, and there is a need for our people and businesses to regain vigor.”

The city’s economy is expected to grow 3.5% to 5.5% this year after contracting 3.5% in 2022, Chan said. Underlying inflation is expected to hit 2.5%.

Hong Kong will issue vouchers worth HK$5,000 ($637) per person to all adults this year, half the amount issued in 2022.

Chan flagged tax rebates in salaries and profits taxes, capped at HK$6,000, lower than the caps set for the previous budget.

Stamp duty ‘adjustment’

Amid weakness in property prices that fell more than 15% last year, the government also announced it would adjust stamp duties for first-time local home buyers, with a “view to easing the burden on ordinary families.” Properties valued at HK$10 million and less will benefit.

The measure would benefit 37,000 buyers and cost the government HK$1.9 billion.

However, Chan said other demand-side residential measures introduced over the past decade to cool one of the world’s hottest property markets would remain unchanged.

The Hang Seng Properties subindex extended gains to as much as 1.3% in afternoon trade.

The sustainability of Hong Kong’s fiscal reserves, however, remains a concern after authorities spent more than HK$600 billion containing the spread of COVID and providing relief for businesses and families struggling with pandemic restrictions.

The budget shortfalls mean the public coffers would be depleted to HK$762 billion ($97 billion) in 2023-2024 – equivalent to 12 months of government expenditure – around half the levels three years ago.

Hong Kong usually runs balanced budgets or surpluses, since its pegged currency system commits it to fiscal prudence.

‘Happy’ Hong Kong?

The former British colony was returned to China in 1997.

Since China’s imposition of a sweeping national security law in 2020 that critics say markedly curbed individual freedoms, hundreds of thousands of residents have moved away, bringing further uncertainty about the city’s regional competitiveness.

WilliamChan, tax partner at Grant Thornton in Hong Kong, said the boost from one-off relief measures would be short-lived and proposed the government revitalize the economy to attract investment and talent.

“Hong Kong is facing a shrinking workforce. Talent retention and attraction are critical to businesses and Hong Kong’s development.”

Analysts say exposure to a weakening global economy and the need to keep up with US interest rate hikes to maintain the local currency’s peg to the dollar will also lead to uncertainties over Hong Kong’s economic recovery.

However, Financial Secretary Chan said the recent reopening of China’s borders would alleviate some pressure, with business and logistics links normalizing after COVID lockdowns.

He cited a speech by China’s leader Xi Jinping, urging Hong Kong to “break new ground and achieve another leap forward” in the next five years, despite economic, social, and political upheavals.

Among other initiatives, the government will introduce a new capital investment entrant scheme to attract talent. –

$1 = 7.8488 Hong Kong dollars

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