Hong Kong’s Bold Move: Cash Handouts and Duty Cuts in Deficit Budget
In a bid to stimulate its economy following prolonged COVID-19 restrictions, Hong Kong has announced that it will give cash handouts and provide assistance to first-time home buyers, despite expecting back-to-back deficits. Financial Secretary Paul Chan revealed that the global financial hub will likely see a deficit of HK$140 billion ($17.8 billion) in 2022/23, which is over twice the amount initially estimated by the government, with a further deficit of HK$54.4 billion projected for 2023/24. Nevertheless, Chan expressed confidence in the economy’s recovery this year, stating that he would maintain a “moderately liberal” fiscal policy to support the momentum for recovery.
To achieve this, the city will distribute vouchers worth HK$5,000 ($637) to all adults, which is half the amount given out in the previous year, alongside tax rebates for salaries and profits taxes, capped at HK$6,000. Chan emphasized that the economy was still in the early stages of recovery and that it was necessary for the people and businesses of Hong Kong to regain their energy. He also projected the economy to grow between 3.5% and 5.5% this year, following last year’s 3.5% contraction, with underlying inflation predicted to reach 2.5%.
Hong Kong Adjusts Stamp Duty to Aid First-Time Home Buyers in Weak Property Market
In the midst of a decline in property prices of over 15% in the past year, the government has announced changes to stamp duties for first-time local home buyers in order to “ease the burden on regular families”. Properties with a value of HK$10 million or lower will benefit from this measure, which is expected to help approximately 37,000 buyers and cost the government HK$1.9 billion. Despite this, Chan has stated that other measures aimed at reducing demand for residential properties, which were introduced over the past ten years to cool one of the world’s hottest property markets, will remain the same.
The Hang Seng Properties sub-index (.HSNP) saw an increase of up to 1.3% in afternoon trading. Nonetheless, concerns about the sustainability of Hong Kong’s fiscal reserves persist after the government spent over HK$600 billion fighting COVID and offering assistance to businesses and families dealing with pandemic restrictions. The budget deficit has resulted in the public coffers falling to HK$762 billion ($97 billion) in 2023/24, which is equivalent to 12 months of government spending and is about half the amount from three years ago. Hong Kong typically runs a balanced budget or a surplus due to its currency system, which is pegged and thus requires fiscal prudence.
Hong Kong’s Economy Faces Uncertainties as Residents Flee and China Implements Security Law
In 1997, China regained control of the British colony it had previously owned.
Hong Kong has seen a significant exodus of residents since the implementation of China’s broad national security law in 2020, which has been criticized for curtailing personal freedoms. This movement of people has added further uncertainty to the city’s regional competitiveness. Grant Thornton’s tax partner in Hong Kong, William Chan, has cautioned that the boost from the relief measures is unlikely to be sustainable. Instead, he suggests that the government revitalizes the economy to entice investment and talent, which is crucial for the development of businesses and the city itself. Economic analysts predict that Hong Kong will face uncertainties in its economic recovery due to its exposure to the weakening global economy and the need to match the US interest rate hikes to maintain the peg of its local currency to the dollar.
However, Financial Secretary Chan has stated that the recent reopening of China’s borders will ease some pressure, resulting in normalized business and logistics connections after the COVID lockdowns. He referred to a speech by Chinese leader Xi Jinping, which encouraged Hong Kong to “forge ahead and achieve another major breakthrough” despite economic, social, and political disruptions. To attract talent, the government will establish a new capital investment entrant program, among other initiatives.
News Source: Reuters