Hong Kong's Financial Secretary Paul Chan Mo-po delivers his annual budget speech at the Legislative Council in Hong Kong on Feb 28, 2024. (CALVIN NG / CHINA DAILY)

HONG KONG – Hong Kong's Financial Secretary Paul Chan Mo-po announced to dispense with all curbs to cool the residential property market in a widely anticipated move while proposing a two-tiered individual tax structure to boost revenue on Wednesday.

Chan revealed the theme of this budget as "Advance with Confidence.  Seize Opportunities.  Strive for High‑quality Development" shortly after opening his speech at the Legislative Council at 11 am.

"We owe every success to the strong leadership of the Central People's Government, the staunch support from our country, as well as the agility and tenacity of Hong Kong people," he said.

Stressing the need to strengthen the momentum of Hong Kong's economic recovery, he noted changing consumption patterns and a shift in inbound visitors' preferences as he pledged to adopt strategies to narrow the government's fiscal deficit progressively. 

The finance chief expected a consolidated deficit of HK$101.6 billion for 2023-24 with fiscal reserves expected to stand at HK$733.2 billion by March 31, 2024.

Boosting revenue, tightening belt 

In a clear nod to the need for increasing revenue amid a ballooning deficit while aiming for structured fiscal consolidation, Chan proposed to implement a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the 2024-25 assessment year. 

For taxpayers whose net income exceeds HK$5 million, the first HK$5 million of their net income will continue to be subject to the standard rate of 15 percent, while the portion of their net income exceeding HK$5 million will be subject to the standard rate of 16 percent. 

This is expected to affect 12,000 taxpayers, accounting for 0.6 percent of the total number of relevant taxpayers, increasing the revenue earned by about HK$910 million yearly. 

The finance secretary also said legislative amendments will be introduced in the first half of this year to implement the progressive rating system for domestic properties, aiming to be effective from the fourth quarter of 2024-25 onwards. This will only affect domestic properties with a rateable value over HK$550,000, accounting for about 1.9 percent of the relevant properties. 

The government envisages an annual increase in revenue to the tune of HK$840 million from this.

The Hotel Accommodation Tax (HAT) at a rate of 3 percent will be collected starting Jan 1, 2025, earning the government an additional HK$1.1 billion per annum.  

Chan said zero growth in the civil service establishment will be maintained. The target was to reduce the growth of operating expenditure from the annual average of 7 percent in the past five years to 2.2 percent in the coming five years. 

READ MORE: Gradual recovery dawns for HK, says Chan

Pledging not to do away with the Government Public Transport Fare Concession Scheme and the Public Transport Fare Subsidy Scheme, he announced reviews of the two schemes with the expenditure under these heads ballooning over the past four years. 

The government debt to GDP ratio will be in the range of about 9 to 13 percent from 2024-25 to 2028-29, he said.

Economic snapshot

Chan shared how in 2023, the economy grew 3.2 percent and private consumption expenditure increased 7.3 percent supported by the special administrative region government's Consumption Voucher Scheme, "Happy Hong Kong" and "Night Vibes Hong Kong" initiatives, and the continuing increase in household income.

In 2024, he expects a 2.5 to 3.5 percent growth for the city. However, in sharing his outlook for the year, the financial secretary said, "The external environment remains complicated."

Referencing the National 14th Five‑Year Plan's clear positioning for Hong Kong's development and the unique advantages under "one country, two systems", he  said, "... we forecast that the Hong Kong economy will grow by an average of 3.2 percent a year in real terms from 2025 to 2028." 

The finance chief described Hong Kong's economic outlook as bright.

Property curbs scrapped

With the city's property sector in the throes of an unprecedented struggle, Chan announced the cancellation of all cooling measures for residential properties with immediate effect in a widely anticipated move.

We consider that the relevant measures are no longer necessary amidst the current economic and market conditions.

Paul Chan, Financial Secretary, HKSAR

Buyer’s Stamp Duty (BSD) targeting non-permanent residents and New Residential Stamp Duty (NRSD) for second-time purchasers of residential property were scrapped starting Wednesday. The applicable period of the Special Stamp Duty (SSD) meanwhile was shortened from three years to two. 

"We consider that the relevant measures are no longer necessary amidst the current economic and market conditions," said Chan.

The Hong Kong Monetary Authority announced after Chan's speech that for residential properties, the maximum loan-to-value (LTV) ratios will be adjusted to 70 percent for properties valued at HK$30 million or below, and 60 percent for properties valued at HK$35 million or above. 

For non-self-use residential properties, the maximum LTV ratio will be adjusted from 50 percent to 60 percent. The maximum LTV ratio for non-residential properties including offices, retail shops and industrial buildings will be adjusted from 60 percent to 70 percent. 

Stock market

A slew of measures were under consideration to boost the performance of the local stock market, Chan said citing enhancing the listing regime, improving the transaction mechanism, boosting investor services, and stepping up market promotion.  

Stamp duties payable on the transfer of real estate investment trust (REIT) units and the jobbing business of option market-makers will be waived, reducing government revenues by HK$ 1 billion.

Tax break & concessions

In a measure that would benefit 2.06 million taxpayers and reduce government revenue by $5.1 billion, Chan pledged to reduce salaries tax and tax under personal assessment for the year of assessment 2023/24 by 100 percent, subject to a ceiling of HK$3,000. 

Also, rates concession will be extended to domestic properties for the first quarter of 2024/25, subject to a ceiling of HK$1,000 for each rateable property. A similar benefit will be extended to non-domestic properties.

This apart, the first registration tax (FRT) concessions for electric vehicles, due to end in March, will be extended for two years but reduced by 40 percent. 

ALSO READ: HK govt urged to start public consultation on broader tax base

A deduction for expenses incurred in reinstating the condition of leased premises to their original condition will be extended to profits-tax payers, Chan said, effective assessment year 2024-25. The time limit for claiming the allowances for industrial and commercial buildings will be removed, he added.

Building the Hong Kong brand

Chan earmarked HK$100 million to boost mega-event promotions over the next three years. 

A new Sponsored Overseas Speaking Engagement Programme will be launched in order to sponsor renowned scholars and industry leaders to attend overseas events and give speeches to promote Hong Kong and its many advantages, he said.

The Hong Kong Tourism Board (HKTB) will hold pyrotechnic and drone shows monthly and revamp its light-and-sound show, "A Symphony of Lights". 

An additional funding totaling HK$1,095 million will be allocated to support the Tourism Commission and the HKTB in organizing these and other Hong Kong events and activities.

In this Feb 28, 2024 photo, Financial Secretary Paul Chan Mo-po arrives at the Legislative Council in Hong Kong to deliver his annual budget speech. (CALVIN NG / CHINA DAILY)

Sustainability, green and digital push

Subsidies to eligible green bond issuers and loan borrowers, due to expire in mid-2024, will be extended up to 2027. Also, the Green and Sustainable Fintech Proof of Concept Subsidy Scheme will be launched in the first half of this year, said Chan. 

He also pledged to expand the scope of e-CNY pilot testing in Hong Kong. 

The government will set up a "digital identity of enterprises" platform, i.e. the business version of "iAM Smart". 

READ MORE: HK doubles down on developing digital economy

In order to promote digital inclusion, HK$100 million will be allocated in the next three years to help people aged 60 or above to receive digital training. The first group of projects is seen to kick off in the fourth quarter of 2024 and benefit at least 50,000 elderly persons, said the financial secretary.  

He proposed to enable the establishment of a modernized Techno Agricultural Park of approximately 11 hectares as part of the Agricultural Park's Phase 2 this year.

Innovation and technology

Chan proposed to set up the Greater Bay Area International Clinical Trial Institute in the Hetao Shenzhen Hong Kong Science and Technology Innovation Cooperation Zone this year. 

Cyberport will be allocated HK$3 billion for the launch of a three-year AI Subsidy Scheme to support local universities, research institutes, and enterprises. 

A HK$10 billion New Industrialisation Acceleration Scheme (NIAS) will be launched this year to enable enterprises engaging in life and health technology, AI and data science, advanced manufacturing, and new energy technology receive funding support of up to HK$200 million on a matching basis, provided applicants invest no less than HK$200 million in Hong Kong.

Subsidies of HK$16 million will be granted to the Technology Transfer Office of each of the eight UGC-funded universities from 2024-25 onwards, Chan added.

International stature

Chan announced that the International Organization for Mediation (IOMed), upon establishment, will have its headquarters in Hong Kong, becoming the first international inter-governmental organization to set up headquarters in the special administrative region. 

The HKSAR government will introduce into the LegCo in the first half of 2024 a proposal to amend the Inland Revenue Ordinance with a view to implementing the "patent box" tax incentive, which will reduce substantially the tax rate for profits derived from qualifying IP to 5 percent.

In his speech, the financial secretary shared that the government was also planning to establish a WIPO Technology and Innovation Support Centre (TISC) in Hong Kong to enable the city's integration into the country's TISC network.

This photo shows the chamber of Hong Kong's Legislative Council Complex as Financial Secretary Paul Chan Mo-po delivers his annual budget speech, Feb 28, 2024. (CALVIN NG / CHINA DAILY)

Talent development 

Chan proposed an additional funding of HK$134 million for subsidies of up to HK$300,000 for each publicly-funded primary school in the next two academic years as part of its "Knowing More About IT" program. 

He also proposed an additional funding of about HK$12 million to the Intellectual Property Department over the next three years, to prepare for the introduction of regulatory arrangements for local patent agent services.

Chan said HK$100 million has been reserved for self-funded tertiary institutions to launch an alliance of universities in applied sciences for vocational and professional education programs. Another HK$680 million will be set aside for the Vocational Training Council's programs, he added.

Health, inclusive care

The financial secretary shared that the 2024-25 estimated recurrent expenditure for healthcare stood at HK$109.5 billion, accounting for about 19 percent of government recurrent expenditure.

Hong Kong will certainly thrive and prosper, like a dragon soaring far and high in the boundless sky.

Paul Chan

The government proposed to increase the duty on cigarettes by 80 cents per stick, with immediate effect. 

Ten more aided, standalone child-care centers, are on the anvil, in phases, to provide nearly 900 additional places for child day-care services within three years.

The After School Care Programme for Pre-primary Children will be expanded in phases, starting this year, to cover all districts offering nearly 1,200 places within three years, said Chan.

An additional HK$130 million will be set aside starting the third quarter of 2024 to provide an additional subsidy of HK$500 per month for employed disabled recipients of Comprehensive Social Security Assistance, benefiting 6,800 persons.

Housing and land supply

The potential land supply for 2024 is expected to provide about 15,000 flats, exceeding the annual demand of 13,200 by 14 percent, the financial secretary said. 

He expected available land for providing no fewer than 80,000 private housing flats in the coming five years.

In closing his speech, Chan struck a cautionary note, "... this year will still be fraught with uncertainties."

But citing the ups and downs of economic development, Hong Kong's financial secretary remained firmly optimistic in the Year of the Dragon as he proclaimed, "... Hong Kong will certainly thrive and prosper, like a dragon soaring far and high in the boundless sky.”