Pedestrians walk on a footbridge in Hong Kong on January 12, 2021. (ANTHONY WALLACE / AFP)
Hong Kong’s 2020-21 fiscal deficit will probably reach a record HK$331 billion (US$42.7 billion), the international accounting firm PricewaterhouseCoopers projected on Thursday.
Higher than the special administrative region government’s December estimate of a consolidated deficit of HK$310 billion, PwC’s projection will reduce fiscal reserves to HK$829.2 billion, equivalent to 11 months of government expenditures. The situation is reminiscent of 2003-2004 when the city faced a recession caused by the Severe Acute Respiratory Syndrome, or the SARS outbreak.
Amid the coronavirus pandemic, the record deficit is the result of a surge in government expenditure and a reduction in revenue
Amid the coronavirus pandemic, the record deficit is the result of a surge in government expenditure and a reduction in revenue. The government unveiled its fifth round of financial aid in December after warning that no further help was coming, lifting the anti-epidemic fund to HK$317.9 billion, according to the government coronavirus page.
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Agnes Wong, tax partner at PwC Hong Kong, said revenue from profits tax and salaries tax are expected to shrink with more individuals and companies applying for provisional tax to be held over due to the pandemic. She said that land premiums will be lower as a result of a postponement in plans for the new Central harborfront land sale.
Citing the deficit as a one-off, coronavirus-induced situation, Wong suggested that the government strike a balance between various fiscal expenditure factors to save for new challenges and pave the way for long-term economic recovery.
With a fiscal deficit of HK$40 billion to HK$50 billion anticipated in the next four years, Wong said the government’s financial position is dependent on the pandemic’s development in 2021 and the course of global economic recovery.
As the SAR government is scheduled to announce its budget for fiscal year 2021-2022 on Feb 24，PwC recommended introducing a temporary loss carry-back for small and medium-sized enterprises to help struggling companies.
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Kenneth Wong, tax partner at PwC Hong Kong, also proposed providing more allowances for individuals, including a one-off COVID-19 allowance or a tax rebate, an increased basic allowance for individuals, and increased allowances for married people and single parents.
The SAR government has launched five rounds of relief measures since February 2020 to help businesses and individuals affected by the pandemic. The financial hub will be in the red for two consecutive budgets, Financial Secretary Paul Chan Mo-po said in December.
Ernst & Young expected Hong Kong’s 2020-21 fiscal deficit to reach HK$363 billion, accounting for 13.5 percent of its estimated GDP.
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