Hong Kong Budget: reviving the economy and overcoming the epidemic

The Financial Secretary, Mr Paul Chan, unveiled the Government’s 2021-22 Budget on February 24, 2021 with wide-ranging measures striving to emerge from the unprecedented financial, economic and social challenges brought about by the COVID-19 pandemic. "It aims to alleviate the hardship and pressure caused by the economic downturn and the epidemic through the introduction of counter-cyclical measures costing over HK$120 billion (EUR 14.16 billion), and seeks to create a leverage effect to benefit our people, workers as well as enterprises", the Financial Secretary pointed out. Fiscal stability is maintained in the new Budget as well.

Severely impacted by the global COVID-19 pandemic, Hong Kong's economy contracted by 6.1 per cent in 2020 while the seasonally adjusted unemployment rate currently stands at a near 17-year high of 7 per cent. The HKSAR Government forecasts economic growth of between 3.5 per cent and 5.5 per cent in real terms in 2021, and average annual growth of 3.3 per cent from 2022 to 2025, while the underlying inflation rate is expected to average 2 per cent. Mr Chan said he expects a gradual recovery for the economy this year, but warned of financial challenges in the coming few years.

The continued investment in innovation and technology by the Government will have the effect of sustaining the momentum built up in recent years in this emerging economy. It will help position Hong Kong well in the development of an international innovation and technology centre in the Guangdong-Hong Kong-Macao Greater Bay Area.

Apart from providing relief in terms of tax and rates, and extra allowances for social security and working family allowance recipients, a key measure under the Budget is to issue HK$5,000 (EUR 572.62) electronic consumption vouchers to each eligible Hong Kong permanent resident and new arrival aged 18 and above. The impact of this initiative would be felt throughout the community during these testing times, and help stimulate local consumption, which has been severely dampened because of the epidemic.

The goal of Hong Kong achieving carbon neutrality before 2050 as announced by the Chief Executive, Mrs Carrie Lam, in the 2020 Policy Address has been given due regard in the Budget as well. The continued issuance of green bonds and promotion of new energy transportation will go a long way towards that objective. Notably, the Financial Secretary has placed green and sustainable finance and the digital economy at the forefront of Hong Kong's continued pursuit to consolidate and strengthen its role as an international financial centre with the full support of the Central Government. Mr Chan announced plans to cease new registration of fuel-propelled private cars in 2035 or earlier, as part of the Government's strategy to promote the use of electric vehicles (EVs), which also includes expanding the EV charging network and training EV technical and maintenance practitioners. To support decarbonising and waste management strategies, an extra HK$1 billion (EUR 114.5 million) has been set aside to install additional small-scale renewable energy systems at government buildings and infrastructure. A further HK$150 million (EUR 17.2 million) will be earmarked to conduct energy audits and install energy-saving appliances, free of charge, for non-governmental organisations subvented by the Social Welfare Department.

The Budget has also put forward effective measures to ensure prudence in public finance, which in turn will enhance confidence in Hong Kong's fiscal strength and is conducive to maintaining monetary stability. It is a pragmatic approach in adopting a deficit budget amid the prevailing economic downturn. Noting that government measures launched under the Anti-epidemic Fund and in last year's Budget exceeded HK$300 billion (EUR 34.36 billion) , Mr Chan forecasted a budget deficit of HK$257.6 billion (EUR 29.5 billion) for 2020-21, but an improvement in revenue for the next financial year is expected.

Given the budget deficit forecasts, Mr Chan said the Government would "set an example by cutting expenditure so as to strengthen fiscal discipline". This would include zero growth in the civil service establishment in 2021-22, and trimming government recurrent expenditure by 1 per cent in 2022-23 to achieve estimated savings of HK$3.9 billion (EUR 446.6 million). To increase revenue, the Government plans to raise the rate of Stamp Duty on Stock Transfers, from the current 0.1 per cent to 0.13 per cent of the consideration or value of each transaction payable by buyers and sellers respectively.

Mr Chan said that now is not the right time to introduce new taxes or revise the rates of profits tax and salaries tax, but the Government will "keep in view the situation and make adjustments at the appropriate time". He added that spending would not be reduced in areas related to people's livelihood, especially the three policy areas of education, social welfare and healthcare.

To help businesses weather the current economic downturn, Mr Chan announced a HK$9.5 billion (EUR 1.1 billion) package of financial relief measures, including reducing profits tax up to a ceiling of HK$10,000 (EUR 1,145.24), waiving business registration fees for 2021-22 and reducing various government fees and charges. The new Budget also sets out initiatives to support the recovery and boost development of key industries, including innovation and technology, financial services, tourism, air cargo and creative industries.

"The economy may move in a cycle, but there is always a way to prosperity," Mr Chan concluded.

The Budget Speech by Financial Secretary Paul Chan can be downloaded here.