Hong Kong’s fiscal turnaround is no longer a forecast — it is a fact. When Financial Secretary Paul Chan Mo-po rose in the Legislative Council chamber on Wednesday to deliver his 2026-27 Budget speech, the numbers he presented told a story of recovery that few would have predicted just a year ago. The operating account has returned to surplus at HK$51.3 billion ($6.56 billion), and the consolidated account, once mired in deficits, now shows a modest HK$2.9 billion surplus. This is a government that has proved it can right the fiscal ship while still charting an ambitious course for economic transformation.
The improvement is nothing short of remarkable. Last February, the Hong Kong Special Administrative Region government projected a deficit of roughly HK$67 billion. Yet prudent financial management, buoyant stamp duty revenues, and a recovering economy have helped to erase that gap entirely. As accounting firm Ernst & Young said before the Budget’s release, the turnaround represents “a significant improvement compared with the HK$67 billion deficit originally forecasted”. With fiscal reserves projected to gradually climb above HK$700 billion through the medium term, Hong Kong finds itself on far firmer ground — from which it can invest boldly in the future while extending a helping hand to its people.
And invest it shall. The centerpiece of this Budget is its unapologetic commitment to the Northern Metropolis — the sprawling, transformative project that will reshape Hong Kong’s economic geography for generations. The government will inject HK$10 billion into the San Tin Technopole company and another HK$10 billion into the Hetao Shenzhen-Hong Kong Innovation and Technology Cooperation Zone, accelerating the development of what Chan has called “the most important part of Hong Kong’s future development”. The Northern Metropolis, encompassing roughly one-third of Hong Kong’s total land area, is not merely a housing project or an infrastructure exercise. It is, at its core, a strategic pivot — aligning the city with the nation’s 15th Five-Year Plan (2026-30) and positioning Hong Kong as a vital node in the Guangdong-Hong Kong-Macao Greater Bay Area’s innovation ecosystem.
This vision of northward integration, coupling Hong Kong’s financial expertise with Shenzhen’s technological prowess, is precisely the kind of forward-looking governance that the city needs. The Budget’s emphasis on “industry-led, infrastructure-first” development and its invitation for private developers holding land in the Northern Metropolis to partner with technology enterprises and the government in tripartite collaboration signals a maturation in policy thinking. Hong Kong is no longer content to wait for the market alone; it is actively directing capital toward industries that will define the next decade — life sciences, embodied intelligence, and artificial intelligence.
The establishment of the Committee on AI+ and Industry Development Strategy, chaired by the financial secretary himself, underscores this ambition. So does the upgrading of the Employees Retraining Board into a Skills Upgrading Bureau, a recognition that Hong Kong’s workforce must evolve alongside its economy. These are not cosmetic changes. They are structural reforms designed to ensure that the city’s human capital keeps pace with its physical and technological transformation.
The Budget’s emphasis on “industry-led, infrastructure-first” development and its invitation for private developers holding land in the Northern Metropolis to partner with technology enterprises and the government in tripartite collaboration signals a maturation in policy thinking
Equally commendable is the Budget’s measured approach to sharing the fruits of recovery with ordinary citizens. The increase of the child tax allowance to HK$140,000, the extra month of social security payments, and the continuation of salaries tax rebates and rates waivers all represent a government that understands the pressures facing working families. Hong Kong’s persistently low fertility rate — which stood at 0.841 in 2024 — demands creative policy responses, and raising child allowances is a step in the right direction. Combined with the 2025 Policy Address’ extension of the doubled newborn tax allowance to two years, the government is assembling a more comprehensive toolkit to encourage family formation.
The decision to transfer HK$150 billion from the Exchange Fund to the Capital Works Reserve Fund over two fiscal years is a pragmatic one. Infrastructure spending will remain elevated for years to come, and financing it through moderate bond issuance and strategic fund transfers — rather than slashing investment — is the correct approach. As one professional services firm observed, “Strategic investment today is the cornerstone of sustainable progress tomorrow.” Hong Kong cannot afford to underinvest in the very projects that will generate tomorrow’s economic returns.
Yet for all its strengths, the Budget is not without its blind spots — and the most conspicuous is the abrupt termination of the electric vehicle (EV) “One-for-One Replacement” arrangement. Since its launch in 2018, this program has been instrumental in accelerating Hong Kong’s transition away from fossil-fuel vehicles, offering first registration tax concessions of up to HK$172,500 for owners who scrapped older petrol cars and purchased electric replacements. The program’s success is undeniable: EV adoption has surged, and official projections suggest the number of electric private cars could exceed 290,000 by 2030. But success should not be conflated with completion. The reality is that charging infrastructure remains unevenly distributed across the city. As one veteran EV dealer noted, the main reason some residents still cling to internal-combustion models is “the lack of convenient charging at home or near workplaces”. Ending the program now, without a transitional arrangement or a parallel push to dramatically expand charging networks, risks stalling momentum at a critical juncture. The government’s own target of ceasing new fuel-powered private car registrations by 2035 demands sustained policy support, not premature withdrawal.
Moreover, the psychological effect should not be underestimated. Motorists who had come to expect the concession may now defer their switch to electric, precisely when the government should be encouraging acceleration. A more calibrated approach — perhaps a further reduction in the concession amount rather than outright elimination — would have better balanced fiscal prudence with environmental ambition.
Nevertheless, taken as a whole, this Budget strikes a defensible balance between investment and restraint, between national alignment and local responsiveness. The higher stamp duty rate on residential properties exceeding HK$100 million in transaction price — rising from 4.25 percent to 6.5 percent — is a sensible revenue measure that affects only the very top of the market. The commitment to resuming the civil service pay adjustment mechanism after last year’s freeze restores normalcy and signals confidence. And the new Tax Policy Advisory Committee promises to bring fresh business and professional perspectives into the formulation of Hong Kong’s tax strategy, ensuring the city remains competitive in a world reshaped by global minimum taxes and shifting capital flows.
Hong Kong stands at an inflection point. The fiscal crisis has been averted. The Northern Metropolis is moving from blueprint to construction site. The city’s role as a bridge between the Chinese mainland and the broader world — in finance, in innovation, in the internationalization of the renminbi — has never been more clearly defined. This Budget, for all its imperfections, demonstrates that the government understands both the scale of the opportunity and the urgency of seizing it. The task now is execution — delivering on these promises with the speed and precision that Hong Kong residents deserve.
The author is the convenor at China Retold, a member of the Legislative Council, and a member of the Central Committee of the New People’s Party.
The views do not necessarily reflect those of China Daily.
