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https://scmp.com/news/hong-kong/hong-kong-economy/article/3046719/hong-kong-budget-deficit-increase-next-year
Hong Kong/ Hong Kong economy

Hong Kong budget deficit to increase next year, finance chief Paul Chan says, as government spending spree continues

  • Chan says another year in the red is no cause for concern with the city supported by HK$1.1 trillion in reserves
  • More financial pressure on the horizon with billions in new welfare spending taking effect in 2021
Government finances are designed to withstand budget deficits during tough times, the city’s finance chief says. Photo: Winson Wong

Hong Kong’s financial secretary has forecast an even bigger budget deficit for 2020-21 as he warned it could surpass the HK$80 billion (US$10 billion) projection for the previous year.

But Paul Chan Mo-po downplayed the significance of going into the red again, saying the city was backed by reserves of HK$1.1 trillion.

His prediction came after embattled city leader Carrie Lam Cheng Yuet-ngor rolled out a welfare package on Tuesday amounting to HK$10 billion of recurring expenditure, which will squeeze the government’s finances further from 2021.

Financial Secretary Paul Chan says the deficit for the coming ‘will become higher’. Photo: Dickson Lee
Financial Secretary Paul Chan says the deficit for the coming ‘will become higher’. Photo: Dickson Lee

In another spending announcement, commerce minister Edward Yau Tang-wah said on Sunday that small and medium enterprises would receive subsidies of up to HK$10,000 next month to take part in exhibitions held by the Hong Kong Trade Development Council. He predicted it could benefit 5,000 local companies.

Chan previously warned that government spending would exceed revenue in 2019-2020 for the first time in 15 years.

He said earlier this month that the deficit for the year to March would be no more than 3 per cent of GDP, which suggests it would total about HK$80 billion.

For the coming financial year of 2020-2021, starting on April 1, Chan predicted the situation could deteriorate due to a drop in land sales and a raft of government measures supporting the economy – which has been hit by the China-US trade war and Hong Kong’s anti-government protests – and those feeling the effects of the recession.

“We believe the deficit will become higher,” Chan wrote in his weekly blog.

He said limited increases in government spending in certain years amid an economic downturn were not a cause for concern.

“The fiscal reserves accumulated in the past have left enough room for us to formulate budgets with deficits when necessary.

“We don’t have to be overly worried if such policies and measures will not lead to long-term structural deficit, even if the deficits are relatively high in some years,” he wrote.

However, he conceded the level of financial reserves could drop faster than expected.

While Hong Kong sits on reserves that could support a government operating without tax revenues for 26 months, Chan said under the levels predicted for the 2023 financial year it could only do so for 19 months at best given the latest economic situation.

Chan said when Lam’s latest relief measures come into force in 2021, the government could study measures to increase incomes and help the economy recover.

Speaking separately, welfare minister Law Chi-kwong conceded the HK$10 billion worth of measures could increase the pressure on government finances in the coming six to seven years.

He said the social security costs would decrease after demographic changes meant the number of Hongkongers aged 60 to 64 started to fall.

But Law ruled out offering further subsidies for another controversial policy, which would increase the statutory public holiday of blue-collar workers from 12 to 17 days.

“If we are to pay the companies for that extra day of holiday, the administrative costs will be one or two times the expense,” Law said.

“So we believe giving corporations longer to provide five more days of holiday allows them to adapt.”