The Hong Kong Special Administrative Region government should take a prudent approach in the 2026-27 Budget to safeguard the long-term health of public finances, as rising medical and welfare costs from an aging population and major infrastructure projects push up spending, a local think tank has warned.
The Our Hong Kong Foundation (OHKF) on Thursday released its recommendations for the upcoming Budget, which is scheduled to be unveiled on Feb 25.
Forecasting the first operating account surplus in six years, the organization expects the government’s consolidated account deficit for the current fiscal year to narrow sharply to about HK$5 billion ($640 million) to HK$10 billion from over HK$80 billion last year.
“While the short-term fiscal improvement is commendable, the policy focus must remain balanced with long-term development, particularly the structural challenges posed by population ageing,” said Jane Lee Ching-yee, OHKF president.
Lee underscored the need to maintain fiscal resilience, urging the government to review its fiscal discipline and lower the public expenditure-to-gross domestic product ratio from above 25 percent currently to below 20 percent.
According to the OHKF, the SAR government’s public health spending has surged by about 85 percent over the past decade, while social welfare expenditure has multiplied by more than 90 percent, as the number of people aged 65 or above has increased by some 680,000 during the period.
Official figures estimate that social welfare spending in 2025-26 will be around HK$130.4 billion, or 22.2 percent of the government’s recurrent expenditure, while health expenditure is projected at HK$115.3 billion, accounting for 19.6 percent.
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To increase revenue, the OHKF proposed introducing a three-tier standard rate for personal income tax to further split the current two-tier structure, lifting the top rate by one percentage point to 17 percent for income exceeding HK$7.5 million. The change could bring in an extra HK$940 million revenue a year, the group said.
OHKF Vice-President Kenny Shui Chi-wai said the move would affect about 5,000 of Hong Kong’s highest earners, and that the top rate would remain below those in many other jurisdictions, including Singapore.
He added that the adjustment should have limited impact on taxpayers, and would not undermine the city’s appeal to high‑net‑worth individuals.
In addition, the government should step up efforts to support the commercialization of local research breakthroughs, the OHKF urged. “We hope the government can do more in the upcoming Budget, so as to help the innovation and technology sector turn profitable faster," Shui said.
The think tank also suggested that the SAR government make use of public housing assets to boost revenue, such as by increasing supply for the Green Form Subsidised Home scheme by 2,000 units annually, and relaunching the Tenants Purchase Scheme.
It projected that these two measures could generate at least HK$17.2 billion in revenue, while helping more families to realize their aspiration of home ownership.
The OHKF also proposed setting up a dedicated fund to accelerate the use of artificial intelligence across government departments, boosting digital efficiency while maintaining service quality and trimming redundant staffing to cut costs.
Contact the writer at gabylin@chinadailyhk.com
