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Thursday, February 23, 2023, 02:02
Budget addresses HK's short-term needs, long-term development
By Mervyn Cheung
Thursday, February 23, 2023, 02:02 By Mervyn Cheung

With Hong Kong’s economy badly eroded, first by the 2019 riots and subsequently by the COVID-19 pandemic, Financial Secretary Paul Chan Mo-po has been facing enormous difficulty in mapping out a budget that will set the city on the path to economic recovery while ensuring that grassroots residents and small and medium-sized enterprises are given adequate help to tide themselves over. This requires a sophisticated balancing act to satisfy demands at both ends of the socioeconomic scale, and has manifested in the 2023-24 Budget.

Over the past three years, the financial chief could only focus, almost exclusively, on mobilizing material resources to keep COVID-19 at bay and to help businesses survive. To meet these targets, repeated drawings from the public coffers to provide the necessary means became imperative. The city’s financial reserves thus have dropped to a new low of approximately HK$820 billion ($104.5 billion). The dwindling level of financial savings, along with a fiscal deficit of HK$140 billion, has tied the financial chief’s hands in drumming up additional funds to answer all the calls for more support. 

There can hardly be any denying that many people are still living from hand to mouth, even though the city is gathering momentum in its march toward normality and recovery. Economically and politically, it is justified that the electronic consumption vouchers program has been renewed at the reduced amount of HK$5,000 per eligible resident. Apart from the caveat of a tightened financial position, there is also the rationale underlying public spending in transitional support measures which should not be allowed to go on indefinitely. 

While a “moderately liberal” fiscal stance commits 80 percent of total spending to the city’s residents and small and medium-sized enterprises to sustain the impetus to achieve economic recovery and high-quality development, modest one-off relief measures are also earmarked in the new budget to mitigate residents’ financial pressure

The financial chief has vowed to proceed on a full and comprehensive basis with the major work required to revitalize the economy amid concerted efforts to smoothly lift all border-crossing restrictions.

To bolster cross-border passenger transport and the tourism industry, the financial chief is set to underwrite, initially in April, loans amounting to a total allocation of HK$2.7 billion for eligible operators and licensed travel companies. In addition, the soon-to-expire Travel Agents Incentive Scheme will be given a three-month extension, and there will be an injection of another HK$30 million into the Information Technology Development Matching Fund Scheme for Travel Agents for the industry to be operationally refined by technology. 

While a “moderately liberal” fiscal stance commits 80 percent of total spending to the city’s residents and small and medium-sized enterprises to sustain the impetus to achieve economic recovery and high-quality development, modest one-off relief measures are also earmarked in the new budget to mitigate residents’ financial pressure. Thus, there are salaries tax reductions of up to HK$6,000. Rates concessions of HK$1,000 per quarter for two quarters will be granted for residential properties, while each eligible residential household will be given a subsidy of HK$1,000 to help with electricity bills. Students will likewise be exempt from fee payments for sitting the 2024 Hong Kong Diploma of Secondary Education Examination. 

Believing that the small and medium-sized enterprises “need more time to consolidate their strengths”, the financial helmsman has proposed extending the application deadline from June this year to March next year for the funding from the SME Financing Guarantee Scheme. To enable small and medium-sized enterprises to implement digitalization, the government will channel HK$500 million to Cyberport for rolling out a digital transformation support pilot initiative.

With the local economy having contracted by 3.5 percent last year and a consequential fiscal shortfall of HK$140 billion occurring in the same period, the financial authorities were compelled to bury themselves in thought about finding new resources to fund the various initiatives at the early stage of the Hong Kong Special Administrative Region’s economic recovery. While the metropolis is still gathering momentum for recovery, it would be ill-timed for the government to push up tax rates or create new taxes to increase revenues when residents and firms are still working hard to escape the long COVID-driven struggle to secure livelihoods. This, however, should not preclude the search for other income-generating options that might go some way toward redressing the prevailing drawbacks of a narrow tax base and rapidly swelling public expenditures that exert rising aggregate fiscal pressure on the declining proceeds from land sales in times of strong economic headwinds. 

Given the city’s worsened fiscal health, the financial chief has resorted to two methods to help boost the treasury. First, he has decided to impose an annual special football betting tax of HK$2.4 billion on the Hong Kong Jockey Club for five years from 2023-24, on the understanding that this revenue-generating measure would not engender any reduced commitment to the city’s charities. Second, he has proposed an increase in tobacco tax by HK$0.60 per cigarette with immediate effect — a move which he described as being part of the effort to cut the city’s smoking rate from 9.5 percent to 7.8 percent. Noting that the current tobacco duty of 62 percent is far below the 75 percent recommended by the World Health Organization, Chan seems to have selected a win-win strategy to deal with the smoking problem. 

Certainly, there is ample room for the SAR to count on its role in the fast-developing Guangdong-Hong Kong-Macao Greater Bay Area to establish and strengthen its financial services as the hub for offshore renminbi transactions, of which 70 percent of the daily volume is currently handled by the city. In addition, Hong Kong is well-equipped to position itself as a regional or even global center for running family offices, which are privately held companies handling investments and wealth management for wealthy families. With the city managing HK$35 trillion in assets and a sector employing 54,000 people, the authorities are reported to be moving toward launching a range of measures to strengthen Hong Kong’s status as Asia’s asset and wealth management hub. Coupled with appropriate fiscal measures, the competitive strength of Hong Kong in advancing to the status of an international financial services hub will surely put the metropolis in a viable position to bring in and retain talents and professionals, a task which has been accorded top priority by the administration. 

The financial chief indicated that he selected orange as the color for the budget’s cover, since it represents confidence and hope for the SAR’s future. In his budget speech, Chan repeated his belief that “Hong Kong’s economy will visibly recover this year”, and that he remains “positive”. His optimism has been rationally echoed by Secretary for Financial Services and Treasury Christopher Hui Ching-yu, who maintains that the connection between the SAR and the Chinese mainland is crucial for the city’s economic recovery and outreach to the global market. With these encouraging assurances from the top echelon of the SAR authorities, local residents should all be at ease in marching forward in our economic and social endeavors that will take us to a higher standard of living, while becoming more ready to contribute to the rejuvenation of the Chinese nation. 

The author is a member of the Chinese Association of Hong Kong and Macao Studies.

The views do not necessarily reflect those of China Daily.

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