Iam very happy with the 2024-2025 Budget. I think Hong Kong is bouncing back to life, and a sustainable fiscal trajectory is in sight.

I was quite worried about fiscal sustainability because with the weak economy we have seen in recent years and the doom and gloom atmosphere that was shrouding Hong Kong, such as the talk about Hong Kong being “over”, a meaningful economic recovery might appear far away. Now I am quite confident that a meaningful economic recovery is around the corner. 

First of all, Secretary for Commerce and Economic Development Algernon Yau Ying-wah predicted not long ago that the mega event economy would exceed pre-pandemic levels by year-end. Adding to this, our exports jumped to HK$388.7 billion ($49.66 billion) in January and marked the fourth straight month of growth and “the best monthly performance since January 2021” according to the Census and Statistics Department. 

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Comparing the three-month period ending January with the preceding three months on a seasonally adjusted basis, the value of exports rose 4.2 percent, while that of imports increased by 2.3 percent. This is buttressed further by the news that residents in Xi’an and Qingdao — two economically prosperous cities — now can travel to Hong Kong on an individual visa. All this suggests relatively strong growth stimulation from the external sector. 

Internally, with the just-announced abolition of all the stamp duties on property transactions that had been imposed since November 2010 for “demand management”, including the Special Stamp Duty, Buyer’s Stamp Duty, and the Ad Valorem Stamp Duty, we can be sure that property transactions will rebound noticeably. Regardless of which direction property prices move, we can count on the free market to help both the property market and the Hong Kong economy heal. Property transactions are an important lifeline to various businesses ranging from real estate brokers, solicitors, accountants, decorators and removals companies, to banks and other financial institutions. In any case, transaction taxes are known to cause economic inefficiency unless they are tiny. Only when these transaction taxes are very small can markets function effectively. The “demand management” stamp duties are huge transaction taxes and have caused huge inefficiencies.

I am also very happy to see that the Hong Kong Special Administrative Region government is now taking fiscal consolidation seriously while reassuring market participants that there will not be any big change to the simple tax regime that has always been a great attraction to businesses and talent. 

Paul Chan Mo-po, the financial secretary, did not introduce any new taxes, but chose to fine-tune the standard tax rate system rationally. The prevailing standard tax rate continues to apply, but at 15 percent for net annual incomes below HK$5 million. For net incomes above HK$5 million, a slightly higher rate of 16 percent will apply. This tiny change will not adversely affect Hong Kong’s tax regime advantage. The tax regime is still simple, but it is now slightly more progressive. In the same spirit, the tax rates on properties will become progressive, at 5 percent to 12 percent, depending on the assessed rental value. 

In the spirit of fiscal consolidation, the financial secretary cut recurrent budgets for various government units by a further 1 percent in 2026/27 and did not offer any consumption voucher this year. This decision will certainly be unpopular. Yet it does convey the message that fiscal consolidation is real. Instead of a universal handout to everybody, the SAR government now assists the weak and vulnerable through schemes such as the Community Care Service Voucher Scheme and an additional subsidy of HK$500 per month for employed disabled recipients of Comprehensive Social Security Assistance (CSSA). The government will also provide an extra half-month allowance for recipients of CSSA payments, the Old Age Allowance, the Old Age Living Allowance, the Disability Allowance, and the Working Family Allowance.

In a budget briefing hosted by Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, we were told that the funds raised through bond issues do not finance recurrent spending, but only infrastructure or other investment that will bring long-term returns. Besides, the current public-debt-to-GDP ratio in Hong Kong is still tiny and it will also be capped at no more than 10 percent of GDP.  

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There are also various other measures to bolster business confidence, attract talent, and build the Hong Kong brand for various industries such as fashion and tourism, plus continuing efforts to refine our physical, digital, and institutional structures, plus various financial innovations that are in the pipeline. All this is giving me confidence that the Hong Kong economy is now on the road again.

The financial secretary is now expecting the Hong Kong economy in 2024 to grow at 2.5 to 3.5 percent. We have plenty of reasons to believe that this is a conservative forecast. Unless some surprises occur, Hong Kong is expected to grow faster than 3.5 percent, with 3.5 to 4.5 percent being the most likely range to me. 

Here are my three cheers for the budget: one for the abolition of the stamp duties introduced for “demand management”, one for the light-touch rational adjustment to our tax system that is both more just and revenue-producing, and one for fiscal consolidation. We will prove to the world that Hong Kong’s resilience is back!

The author is director of Pan Sutong Shanghai-HK Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.