Who are the biggest winners and losers of the Hong Kong budget?
- Finance chief Paul Chan scrapped consumption vouchers, as well as electricity bill and university entrance exam subsidies
- Chan also prioritised spending on tech-based and green initiatives to steer new sources of growth and diversify from traditional sectors
Under the theme of “Advance with Confidence. Seize Opportunities. Strive for High-quality Development”, the new budget scrapped consumption vouchers, and electricity bill and university entrance exam subsidies, while capping the salaries tax reduction to HK$3,000 (US$383), half the amount from last year.
With the city expected to register a HK$101.6 billion deficit at the end of March, Chan prioritised spending on technology-based and green initiatives to steer new sources of growth and diversify from traditional sectors such as trade and financial services, as well as land and property.
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Hongkongers react after 2024-25 budget scraps measures to cool property market
So who wins in the latest budget and who loses out?
Chan took a radical step of axing all property curbs immediately, making flats within reach of more people and easing restrictions on loan ceilings. Chan also made a push to boost land and housing supply.
“[Chan] makes bricks without straw. The direction is healthy and positive. The tone is not rosy, but is a solid step to face challenges,” said Patrick Yeung Wai-tim, CEO of the Hong Kong General Chamber of Commerce.
The axing of property cooling measures will allow city residents, including non-permanent ones, to buy homes without paying extra stamp duties.
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Marcos Chan, head of research at consulting firm CBRE Hong Kong, said the move would help to stabilise the city’s slumping property prices.
“This is seen as a positive move and is likely to create positive momentum for the market,” he said.
“However, any pickup in transaction volume will be gradual as high borrowing rates remain a hurdle for many commercial investment activities.”
Data for 2023 shows home prices depreciated by 7 per cent, before dropping another 1.6 in January this year and resulting in a cumulative contraction of more than 20 per cent from the market’s peak in 2021.
The current property market conditions, alongside a sluggish stock market and higher recurrent public spending, left local authorities with a HK$101.6 billion deficit for the 2023-24 financial year.
Combined with the spike in government expenditure during the Covid-19 pandemic, Hong Kong’s reserves are expected to shrink to HK$733.2 billion on March 31, marking a decade low.
Chan plans to help finance government operations by seeking the Legislative Council’s approval to pull HK$59 billion in investment income from the city’s Future Fund.
If the finance chief gets the green light from lawmakers, it will be the first time in more than 10 years that authorities have tapped into their rainy day fund.
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“Tapping into the Future Fund is undesirable, as it’s a short-term measure,” said Simon Lee Siu-po, an honorary fellow at the Asia-Pacific Institute of Business at the Chinese University of Hong Kong.
The economist called on the government to diversify its revenue sources, shifting away from staples such as land and related areas.
The issuing of bonds will also push up the ratio of the government debt to gross domestic product (GDP) from the 6.2 per cent logged last November to a range of 9 to 13 per cent between 2024‑25 and 2028‑29.
“The debt ratio isn’t worrying compared with other mature economies,” Yeung of the business chamber said.
According to the International Monetary Fund, the debt ratio of advanced economies such as Singapore, Japan, the United Kingdom, the United States and Spain was in three-digits in 2022.
In another significant move, a mega reclamation plan to build the Kau Yi Chau Artificial Islands, known also as the Lantau Tomorrow project, will be postponed due to the deficit.
“Prioritising spending is important, the budget represents a balance of many different issues,” said Ceajer Chan Ka-keung of the Hong Kong University of Science and Technology and a former secretary for financial services and the treasury.
Paul Chan’s spending on new sectors signals a bid to transform the economy, by sinking in HK$10 billion of investments in the hi-tech industry and HK$3 billion to the Cyberport tech hub to support universities and research institutes over AI development.
Chan forecast the gross domestic product would advance between 2.5 per cent and 3.5 per cent in 2024 before growing at an average 3.2 per cent during 2025 to 2028. Last year, the city did not experience the much-expected post-Covid bounce, with growth at 3.2 per cent.
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Sustaining this figure going forward would be a challenge, but a worthy target, experts said.
“For a mature economy like Hong Kong, the GDP growth forecast for 2025 and beyond fares better than many other similar economies, which normally grow at about 2 per cent annually,” said associate professor Billy Mak Sui-choi of Baptist University’s department of accountancy, economics and finance.
He added that the 2025-28 growth would reflect the contribution of the IT sector.
Going by the shifts in spending, some segments of Hong Kong society might feel the short-term pain of a less grass-roots-oriented budget. In exchange, as analysts said, the hope was for long-term gain – for everyone.
