This undated photo shows a view of the Victoria Harbour in Hong Kong. (PHOTO / IC)

Hong Kong’s current budget deficit is already higher than some estimates because of the worse-than-expected global macroeconomic environment.

Global auditory service firm Deloitte said on Friday that it expects the Hong Kong Special Administrative Region government to record a budget deficit of HK$131.6 billion ($16.81 billion) for the fiscal year 2023-24, and the estimated fiscal reserves will drop to about HK$703.2 billion as of March 31, 2024.

Economists are worried that government expenditures may not be the main driver to push up economic growth in Hong Kong for the remainder of this year

However, as of the end of September, the government had recorded a cumulative year-to-date deficit of HK$177.7 billion for the six months ending Sept 30 (April through September). As of March 31, fiscal reserves stood at HK$834.8 billion.

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The government spokesperson said that the cumulative year-to-date deficit for the period was mainly due to the fact that salaries and profit taxes are mostly received toward the end of a fiscal year.

Financial Secretary Paul Chan Mo-po had predicted earlier that the budget deficit may rise to over HK$100 billion for this financial year as the external economic environment is worse than expected.

The SAR will promulgate the government budget for the fiscal year 2024-25 on Feb 28.

Economists are worried that government expenditures may not be the main driver to push up economic growth in Hong Kong for the remainder of this year.

“The economy continued to be lifted by the recovery in private consumption and services exports, but other major expenditure components contracted, including goods exports, gross domestic fixed capital formation, as well as government spending against a high comparison base and due to its fiscal consolidation efforts,” Singaporean-based United Overseas Bank said in its economics research report.

Lloyd Chan, senior economist at think tank Oxford Economics, said the weaker-than-expected GDP figure for the third quarter came from a fall in government consumption, which was larger than the think tank had expected. Chan said he is worried that the fiscal policy of the Hong Kong SAR government will not support growth.

In the asset-management arena, the government could consider providing tax incentives for debt or credit funds and single-family offices for investing into the debt market, and tax certainty for pension funds and endowment funds

Deloitte said it hopes that the government will introduce more tax incentives and concessionary measures to enhance Hong Kong’s competitiveness, uphold Hong Kong’s position as an international financial center and an asset management hub, and nurture an attractive business environment for green investments.

For promoting Hong Kong as a regional business hub, Deloitte recommended the administration introduce a concessionary tax rate of 8.25 percent for multinational enterprises and global trading companies to set up their headquarters in Hong Kong and carry out global trading activities in Hong Kong.

READ MORE: Chan: HK to balance economic revival, sustainability in budget

The administration could also enhance the city’s intellectual property tax regime by relaxing the deduction of IP costs and the deduction of research-and-development expenditures, Deloitte said.

In the asset-management arena, the government could consider providing tax incentives for debt or credit funds and single-family offices for investing into the debt market, and tax certainty for pension funds and endowment funds.

The global auditing firm also suggested offering a 200 percent super deduction for investments or upgrades in qualified green and energy-saving property, plant and equipment; and providing a 150 percent super deduction for premium paid for green insurance. The government could also consider giving a preferential tax rate of 8.25 percent for qualified companies engaging in green industries such as recycling or green energy.