Hong Kong is scaling back on fiscal stimulus this year as the government tries to balance the need to lift the economy out of its pandemic slump with keeping the deficit under control.
(Bloomberg) — Hong Kong is scaling back on fiscal stimulus this year as the government tries to balance the need to lift the economy out of its pandemic slump with keeping the deficit under control.
The city will still give out spending vouchers this year to eligible residents and offer a salaries tax rebate, the latter of which will benefit 1.9 million taxpayers, Financial Secretary Paul Chan said in a speech Wednesday outlining the city’s budget for the 2023-2024 fiscal year. But each of those programs will be smaller in scope than last year.
The modest size of those proposals suggests the government is conscious of the risks of continuing to run a deficit as the city tries to stage an economic rebound. The voucher plan is half the size of last year’s handouts, while the tax rebate cap was lowered to HK$6,000 to HK$10,000.
Chan said, though, that the city needs to adopt a “moderately liberal fiscal stance” to spur growth, adding that the estimated deficit would reach HK$54.4 billion in the 2023-2024 fiscal year. Most economists had expected a slight surplus.
“The budget is striking a balance between charting a course for a stronger recovery and proper investment in fiscal areas, while taking being mindful of its fiscal position,” said Lloyd Chan, senior economist at Oxford Economics Ltd., adding that the vouchers were a “surprise.”
While the government is dialing down some stimulus, Chan’s budget still plans to keep policy pretty loose. He detailed a housing proposal that involves lowering the tax rate for first-time buyers of properties worth HK$9 million ($1.1 million) or less. He said that would ease “the burden on ordinary families of purchasing their first residential properties.”
Shares of property developers gained after news of the cut in stamp duty. Sun Hung Kai Properties Ltd. and Henderson Land Development Co. climbed more than 1.2%. The Hang Seng Index was little changed.
Chan’s walking a very fine line. The city recorded a budget shortfall of HK$140 billion for the 2022-2023 fiscal year, about three times as high as his original estimate. The economy shrank 3.5% last year, the third contraction in four years, and Chan warned that weakening global growth will continue to hurt the city’s exports. A population exodus during the pandemic and rising interest rates have also created headwinds.
Now, though, the city needs to kickstart its economy amid rising competition from rival Singapore, which is vying to be Asia’s top destination for business, talent and capital.
Chan laid out expectations for a rebound this year, forecasting that economic growth would reach 3.5% to 5.5% in 2023.
Another deficit, meanwhile, should be manageable — at least in the short term. The city has enough of a cushion from reserves to cover itself from any shortfall for now. But any prolonged drop in reserves puts future government spending at risk and increases the chance of more borrowing or tax hikes.
Other highlights of the budget speech:
- Hong Kong to launch new capital investment entrant program
- City to set up green technology and finance community
- Headline inflation is forecast to reach 2.9% this year
- GDP growth from 2024-2027 will average 3.7% a year
- City proposes annual HK$2.4 billion soccer duty on Jockey Club for five years
- HK to Consider Allowing Stock Trading During Severe Weather
- HK to Raise Tobacco Duty for Each Cigarette by 60 HK Cents
(An earlier version of this story corrected the value amount of properties eligible for tax cuts.)
–With assistance from Richard Frost and Shawna Kwan.
(Updates throughout.)
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