Although the issuance of bonds in recent years added to income, the city still logged a deficit in every financial year since 2019-20, except for 2021-22. The shortfall is expected to balloon to more than HK$100 billion in 2023-24, far more than the initial estimate of HK$54 billion.

The fiscal reserves, which peaked at HK$1.17 trillion in 2018-19, are expected to shrink to an estimated HK$780 billion – about 12 months of expenditure – in 2023-24.

Top accounting firms are less optimistic, predicting a deficit of as much as HK$148 billion, leaving only HK$686 billion in the reserves.

Associate Professor Billy Mak Sui-choi, of Baptist University’s accountancy, economics and finance department, said it was time for the administration to stop handing out universal sweeteners.

“The government often gives out relief packages, but not everyone needs it, especially when our jobless rate is so low,” he said. “A more targeted approach should be taken to support the most vulnerable, and the good-to-have sweeteners should be cut.”

He said he thought a reasonable increase in public service charges was acceptable, as long as the inflation rate, cost and affordability were taken into account.

Finance sector lawmaker Ronick Chan Chun-ying suggested more control on welfare spending, for example, by introducing means testing and preventing those who had left the city permanently from receiving subsidies.

The government should also crack down on misuse of the HK$2 transport fare subsidy and stop users from doing short trips on longer routes as the government would then have to reimburse transport operators more than necessary, he added.

Over the years, the amount reimbursed by the government to public transport operators under the scheme had increased from about HK$1.2 billion in 2018-19 to nearly HK$3.1 billion in 2022-23. The estimated cost for 2023-24 is HK$6.7 billion.

Government spending on social welfare, education and healthcare altogether accounted for about 60 per cent of recurrent expenditure, respectively rising by 123 per cent, 53 per cent and 93 per cent over the past 10 years.

The authorities were most generous in the 2020-21 financial year, spending HK$122 billion, with more than half going to the HK$10,000 cash handout for all eligible residents.

Simon Lee Siu-po, an honorary fellow at Chinese University’s Asia-Pacific Institute of Business, said the current deficit was not only the result of external influences but also poor fiscal discipline.

Urging the government to review its financial philosophy, he said: “It’s irresponsible if the government asks the public to pay more, while not exercising effective cost control measures.”

For example, he said, the government should have recovered the cost of public services when the economy was strong, instead of raising them when the economy was sluggish.

He suggested focusing on cost-cutting in the coming budget, including a wage cut for civil servants, saying “just a 10 per cent cut could save tens of billions”.

In 2022-23, the government spent HK$149 billion on staff-related expenditure in the civil service and HK$150.5 billion on the subvented sector which includes schools, public hospitals and NGOs.

Lee said another round of consumption vouchers would have a very limited effect in stimulating the economy, but it would be bearable to give some sweeteners to the city’s most underprivileged groups.

On the income side, profits tax, salaries tax, land premium, stamp duties and investment income were five major sources of revenue for the Hong Kong government.

Land premium and stamp duties accounted for more than 30 per cent of total income from 2014-15 to 2021-22, but their share shrank in the following years.

The government collected only HK$69 billion each for both land premium and stamp duties last year, a dip from HK$143 billion and HK$99 billion respectively in 2021-22.

Authorities estimated HK$85 billion in income each from both in 2023-24, but the stock and property markets have remained sluggish over the past year, with six land tenders failing.

Professor Terence Chong Tai-leung, executive director at Chinese University’s Lau Chor Tak Institute of Global Economics and Finance, said the deficit was not a problem unique to the city.

“As a financial centre, our income from land sales and stamp duties will inevitably be affected by the high-interest rate environment,” he said. “There’s no short-term solution to boost income because no single item can help plug the tens of billions of shortfall.”

He suggested that the government use part of the Exchange Fund, the war chest used to defend Hong Kong’s currency, to buy United States treasury bonds and support the coffers with the interest income as a countercyclical fiscal measure.

“For example, allocating HK$2.5 trillion for the investment could already generate HK$100 billion of interest income, which could help a lot,” he said. “Unlike many countries, Hong Kong has the luxury of reserves, why don’t we make good use of them?”

Amid calls for a tax base review to increase income, Polly Wan Pui-yee, tax partner of Deloitte China, said the city should preserve its simple tax regime and low tax rates to maintain its competitiveness.

“Just imposing sales tax and VAT would already increase the operating cost of businesses, especially the small and medium-sized enterprises, let alone the additional tax,” she said.

Instead, she suggested attracting investments by offering tax benefits that stimulated more economic activity.

But lawmaker Chan said that in the long run, the government needed a new mindset in managing its finances, for example, by being bolder in issuing bonds.

Suggesting using a rolling budget to increase the accuracy of estimates, he said: “Having a surplus doesn’t mean we have to give out sweeteners, and having a deficit is not a reason to slow down investment in new industries and infrastructure.”