[Sponosred Article] The Financial Secretary unveiled a health-conscious budget with tax incentives earmarked for economic diversification, maritime services development, and innovations and technology transformation, that prepares Hong Kong for the bumpy road ahead. With the enviable fiscal surplus dropped two-third to HK58.7 billion, EY agrees with the latest budget those counter-cyclical measures it took to better utilize fiscal reserves rather than handing out short-term sweeteners. In tandem with Hong Kong’s fiscal health, the Financial Secretary clearly noticed that the sore of Hong Kong’s public health needs to be addressed before it festers. The recurrent government expenditure on public health care has been increased by 10.9% to HK$80.6 billion. The additional HK$700 million recurrent funding to increase medical staff and health professionals’ allowances; the extra HK$5 billion for medical equipment acquisition and upgrade; and the creation of a HK$10 billion public health care stabilization fund are generally welcome. More laudable was the Financial Secretary’s desire to diversify Hong Kong’s economy away from the “four-pillar” service industries – financial services, tourism, logistics and professional business services. Agnes Chan, Managing Partner, EY Hong Kong and Macau, says, “We welcome the Financial Secretary’s commitment to diversify through developing technology infrastructure, pooling talent, supporting enterprises and promoting re-industrialization.” A further area where the Financial Secretary could have elaborated more is the extra expenditure earmarked to promote research and development (R&D), technology and innovation in addition to the considerably large expenses already incurred. Some commentators may have hoped for guidance on the internal performance measures the Government will apply in assessing whether taxpayers are receiving the best bang for their buck. While EY welcomes the new law passed last year that grants tax deductions for qualifying R&D expenditure, Chan adds, “We are hoping that the Government would consider expanding the definition of R&D expenditure such that subcontracted R&D activities would also qualify for the enhanced or normal deductions.” Also positive was the Financial Secretary’s announcement of the setup of a dedicated task force to study tax and other measures such as 50% profits tax concession to eligible insurance businesses including the marine insurance industry. Chan encourages such move. “It could enable Hong Kong to build on its existing strength as a major container port in the region and capitalize on the immense opportunities brought about by the Belt and Road (B&R) and Greater Bay Area (GBA) initiatives. However, the Financial Secretary could widen the coverage of the proposed tax measures to attract more shipping-related businesses to Hong Kong.” EY remains hopeful that the Government would consider our proposal of introducing tax incentives to attract companies to set up Regional Headquarters (RHQs) in Hong Kong that will increase the demand for expertise, goods and services, ultimately benefitting the economy. In conclusion, the Financial Secretary’s health-conscious budget, with less sweeteners and increased expenditure on public health, together with a greater diversification of Hong Kong’s economy, may be good medicine for Hong Kong.