Salaries tax for individuals making at least HK$5 million will go up, along with the introduction of a progressive rating system for domestic properties, Chan revealed, as he steered clear of raising charges of public services and basic utilities that would have affected a wider cross-section of the public.

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Hongkongers react after 2024-25 budget scraps measures to cool property market

Hongkongers react after 2024-25 budget scraps measures to cool property market

Boosting economic recovery, facing rising deficit

In his budget, themed “Advance with Confidence, Seize Opportunities, Strive for High-quality Development”, the finance chief put the focus squarely on economic recovery and bolstering confidence as he unveiled plans to deepen innovation and technology, seek new markets, and attract tourism and investment while taking full advantage of opportunities offered by closer integration with mainland China.

“The aim of this year’s budget is to stabilise confidence in the short term so as to resist the impact brought about by the weak market resulting from external factors,” said Chan, citing the scrapping of the property cooling measures.

“In the midterm, we need to deal with some challenges … our work is to grab enterprises, grab talent, and grab capital. That will be our main task. In this respect, we are making progress.”

Hong Kong budget sparks buzz over property purchases and just who will pay more taxes

On the other side of the ledger, he revealed the city’s ballooning deficit would hit HK$101.6 billion this financial year. That would leave fiscal reserves at HK$733.2 billion, the lowest in a decade.

He said he expected the city’s books to remain in the red with a loss of HK$48.1 billion in 2024-25 before turning in a surplus in subsequent years, through a combination of measures of issuing bonds as well as the targeted raising of several government charges.

Chan predicted that Hong Kong’s economy, which grew 3.2 per cent last year, would expand further at a modest 2.5 to 3.5 per cent, before averaging at 3.2 per cent from 2025 to 2028.

“Hong Kong’s economic growth last year was slower than expected owing to global interest rate hikes, economic slowdown and continued geopolitical tensions,” he said.

“Notwithstanding a reduction in total government expenditure after the pandemic, revenue from land premium and stamp duty has decreased under a softened asset market, resulting in a larger deficit than expected.”

Scrapping property cooling measures

Revenue from land premium was only HK$19.4 billion in the current financial year, substantially lower than the original estimate by HK$65.6 billion. Revenue from stamp duty of HK$50 billion was also lower than the original estimate of HK$85 billion.

Addressing mounting calls from the property and business sector to ditch the decade-old cooling measures in the market as lived-in home prices fell for the ninth straight month to a level last seen in 2016, Chan made a bolder-than-expected move to scrap all of them with immediate effect.

These include the Buyer’s Stamp Duty (BSD) that targets non-permanent residents and a New Residential Stamp Duty (NRSD) for second-time purchasers. Homeowners will also no longer need to pay a Special Stamp Duty (SSD) if they sell their home within two years.

“We consider that the relevant measures are no longer necessary amid the current economic and market conditions,” Chan said.

End of Hong Kong property curbs will not fuel speculation, says government

He said the government expected the volume of transactions to increase without revealing a target, and emphasised the move was to “stabilise people’s confidence” in the short term and to prevent the negative market sentiments from dragging confidence across the board.

One immediate blow to the government will be the loss in stamp duty revenue with the axing of the curbs – whose average annual figure stood at HK$9.4 billion between 2020 and 2023.

This will further dent the city’s shrinking reserves, which are expected to dive further to HK$685.1 billion next year.

Cutting sweeteners by HK$47 billion

Signalling a halt to generous relief measures given the smaller coffers, Chan slashed the amount to be spent on one-off sweeteners from last year’s HK$59.3 billion to HK$11.5 billion.

A chunk of last year’s relief measures was to cover 100 per cent salaries and profits tax reduction capped at HK$6,000. This sum has been halved to HK$3,000 for this year.

Property owners can now only apply for one quarter of rate concessions, up to HK$1,000 for each site, instead of two quarters last year.

The consumption vouchers, which had been dished out for three years in a row and cost the public coffers HK$33 billion last year, have also been scrapped.

Hong Kong’s 2024-25 budget cuts sweeteners by more than 80 per cent

Chan said he “felt sorry” that the scale of tax reductions was smaller than before, adding: “The government has experienced several years of budget deficit. Our ability to offer more support measures is limited.”

Chan put forward what he described as a “fiscal consolidation programme” by “exercising stronger control” over the pace of expenditure growth through reprioritising or improving business processes, such as freezing public service headcounts and cutting department expenses by 1 per cent for the next two years.

In a move that signalled a change in infrastructure priorities, the government has also decided to postpone the HK$580 billion reclamation project of the Kau Yi Chau artificial islands, an ambitious project by former city leader Carrie Lam Cheng Yuet-ngor previously called Lantau Tomorrow. It was initially scheduled to commence next year.

Tax hike for Hong Kong’s top 12,000 earners

One of the most eye-catching initiatives by Chan in hunting for new sources of income is the rare tax hike which will affect about 12,000 top earners in the city. It is set to reel in about HK$910 million extra revenue for the government each year.

Under the measure, their first HK$5 million of net income continues to be subject to the standard 15 per cent rate, while the portion exceeding that amount will be taxed at a standard 16 per cent rate.

Those affected include Canning Fok Kin-ning, the right-hand man of tycoon Li Ka-shing, who earned HK$204 million in 2022, Chief Executive John Lee Ka-chiu, who makes HK$5.4 million a year, and Monetary Authority chief executive Eddie Yue Wai-man, who earned HK$10 million in 2022.

Which of Hong Kong’s high earners are set to fork out under new salary tax regime?

Chan stressed the impact of the move on the city’s competitiveness would be “minimal”.

“Even with this increase, our salaries tax regime remains very competitive, compared with other jurisdictions,” he said. “In order to get additional income by reference to the ability to pay, we think it is the right move.”

He proposed legislative amendments to introduce a progressive rates regime which will affect flats with a rateable value of more than HK$550,000, amounting to about 1.9 per cent of relevant properties.

Tobacco tax has also been increased to 80 HK cents per stick with immediate effect too, bringing the cost of each pack of 20 to about HK$94.

But he dismissed suggestions for a civil service pay cut despite revealing the idea was discussed. “Whether it is senior government officials, political appointees, or general civil service colleagues, how our pay is adjusted would affect the private sector.”

Taxing tourists, dipping into Hong Kong’s Future Fund

The government also revived the hotel accommodation tax paid by guests, which had been waived since 2008, from January 2025 onwards, arguing the 3 per cent charge was “very affordable” and would generate an annual income of more than HK$1.1 billion.

While Chan had earlier managed public expectations by saying he would review charges for public services to help balance its books, he eventually refrained from raising water or patient bills and only increased the business registration fees by HK$200 to HK$2,200 per annum.

He, however, vowed to review the HK$2 transport subsidy scheme for elderly and disabled residents, as well as the public transport fare subsidy scheme, whose expenditure had grown significantly over the past years.

The administration will also for the first time seek approval from the legislature to dip into the investment return of the Future Fund set up for rainy days, which made up most of the city’s reserves, while issuing HK$120 billion worth of bonds this year as a new revenue source and to finance infrastructure development.

In boosting the sluggish economy, Chan earmarked HK$1.09 billion to strengthen tourism development and organise events, including a new pyrotechnic and drone show every month, and allocated extra findings for cutting-edge industries such as life and health technology, artificial intelligence, data sciences and advanced manufacturing.

Amid the ongoing China-US tech war, the administration will also establish the Hong Kong Microelectronics Research and Development Institute this year which will spearhead research collaboration on the third-generation semiconductors among universities, R&D centres and the industry.

Wrapping up his eighth budget, Chan called for unity as he said, based on the past: “It is obvious that the path we have trodden, however, winding or bumpy, has always led to a better tomorrow.”

Hong Kong will balance budget in 2 years by dipping into reserves, issuing bonds

Commerce sector lawmaker Jeffrey Lam Kin-fung, also a member of top advisory body the Executive Council, said that once the housing market was stabilised with the repeal of the property curbs, it would draw investors and boost the market and the overall economy in turn.

The Democratic Alliance for the Betterment and Progress of Hong Kong welcomed Chan’s move to introduce a two-tiered standard rates regime and a more targeted tax of the city’s top earners while not increasing any livelihood charges.

The Society for Community Organisation said while it was good the government introduced higher taxes for the rich, it was disappointed by the lack of targeted measures in alleviating poverty and curbing social welfare spending was ill-advised: “It will have a negative effect on our service operators.”

Additional reporting by Harvey Kong