Hong Kong Unveils Budget of USD 97B For Economic Recovery

On Feb 22, Hong Kong's finance chief unveiled a HK$761 billion (US$97 billion) budget, plunging into the coffers to pay for the recession-hit city's post-COVID recovery.

Finance Secretary Paul Chan announced tax cuts and more consumer spending vouchers in an effort to jump-start the finance center's economy.

Hong Kong's leaders are eager to revive the city's fortunes after three consecutive recessions - a tumultuous period that saw the economy battered by protests, virus controls, and Beijing's authoritarian crackdown.

While rival financial centres reopened to the rest of the world long ago, Hong Kong only recently emerged from pandemic isolation when it reopened its border with mainland China, its main economic pipeline.

"Our economy is at the early recovery stage, and members of the public as well as a large number of enterprises are still weighed down by tremendous pressure and require support," Chan told legislators while announcing his 2023/24 budget.

As Chan is under pressure to cut fiscal spending, the latest blueprint for reversing the downturn allocates HK$5,000 (US$637) handouts to more than 6 million people, half the amount allocated last year.

Other measures include salary tax breaks, welfare allowances, and a "Happy Hong Kong" campaign that includes food fairs to make the city more enjoyable.

The budget will put the city's books in the red for the second year in a row, but by less than some forecasters had feared, with a HK$54.4 billion deficit.

Hong Kong has spent more than HK$600 billion on pandemic relief efforts over the last three years.

The impending expenditures would reduce one of the world's largest fiscal reserves to around HK$763 billion (US$97 billion), roughly half of what it was prior to the pandemic.

On the road to recovery, Hong Kong has prioritised restoring its business-friendly reputation and stemming an exodus of both expatriate and local workers.

In three years, the city's workforce has lost more than 200,000 people.

Andy Kwan, of the ACE Centre for Business and Economic Research, warned that Hong Kong might spiral into a structural deficit if it fails to correct course.

"Medium- to long-term government revenue will be affected because both the economic growth and salaries tax will be undermined when quantity and quality of young labour worsens," Kwan told AFP.

To attract more talent, Chan announced a capital investment scheme and reaffirmed measures first proposed by city leader John Lee in his inaugural policy address last year, such as relaxed visa rules for high-earners and elite university graduates.

Chan unveiled a new loan pool of HK$2.7 billion for passenger transport operators and licenced travel agents, desperate for crowds to return and inject cash into the moribund economy.

The move builds on a charm offensive launched earlier this month, in which the government offered 500,000 free flights and increased publicity.

Hong Kong welcomed approximately 600,000 visitors last year as quarantine restrictions were relaxed, compared to 56 million arrivals in 2019.

The city's economy shrank by 3.5% last year as it dealt with its worst-ever coronavirus outbreak, with GDP falling in each quarter.

However, Chan appeared to be confident of a comeback.

"I believe that Hong Kong's economy will visibly recover this year," he said. "I remain positive."