Hong Kong’s 2024-2025 Budget will be announced on Feb. 28, with Financial Secretary Paul Chan previously predicting a deficit of over HK$100 billion (approximately $12.8 billion) for the current fiscal year. A former official believes authorities will issue bonds to cope with the situation and await an improvement in the economic situation.
Raymond So Wai-man, former Under Secretary for Transport and Housing and a financial expert, described to cantonese newspaper am730 on Feb. 15 the current financial deficit situation as “no way out.”
Mr. So is the Dean of the School for Higher and Professional Education. Based on his analysis, fixed government expenditures such as healthcare and social welfare are challenging to reduce. Given the current economic downturn, expanding the tax base and increasing profits and salary taxes are also difficult to achieve.
Since neither increasing revenue nor cutting expenditure is feasible in this situation, solving the fiscal deficit is not easy, according to Mr. So, who estimated that the authorities could only adopt a delaying strategy, addressing it by issuing bonds and waiting for the economic environment to improve in the coming years.
“[There is] no alternative method but to delay first,” he said.
In October last year, Hong Kong Financial Secretary Paul Chan said on RTHK that the authorities’ fiscal deficit could exceed HK $100 billion ($12.8 billion). Mr. So pointed out that the authorities initially expected revenue from land sales to be over HK $80 billion ($10.2 billion). Still, the actual income is only over HK $10 billion ($1.28 billion). Considering the deficit budget made by the authorities in 2023, as long as there is a shortfall of HK $70 billion ($8.95 billion), a fiscal deficit of over a hundred billion Hong Kong dollars is likely to occur.
Regarding Secretary Chan’s public rejection of suggestions to relieve the fiscal deficit from the private sector, Mr. So cited examples, stating that a certain political party’s advocacy of a mainland departure tax would not only be difficult to implement under the integration of the Greater Bay Area but would also be detrimental to Hong Kong’s economy. It may even cause some Hongkongers traveling north to change their round trip on the same day to an overnight stay.
Additionally, Mr. So questioned the effectiveness of the capital gains tax, believing that it may further suppress already low real estate transactions.
As for broadening the tax base, Mr. So mentioned that Hong Kong had been unable to reach a consensus for many years, mainly because discussions on this issue only arose during economic downturns. Once the economic environment improved, the problem no longer existed, so there was no need to continue studying it.
He further pointed out that Hong Kong society believes simpler tax systems are better, unlike some overseas countries where administrative costs for sales taxes can be as high as 10 percent of sales prices. The complex calculations could affect grassroots individuals.
Regarding expenditure reduction, Mr. So was similarly pessimistic, arguing that since social welfare and healthcare expenses cannot be reduced, the authorities can only stop increasing allocations at most, leading to longer waiting times for services. He described the current fiscal deficit dilemma as a “no way out” situation, estimating that the authorities’ only method would be a “delaying tactic,’ addressing it by issuing bonds and using the “cash account” as “income,” while waiting for the economic situation to improve.
He explained the advantages of issuing bonds, stating that the authorities do not need to repay them within the same year. If Hong Kong’s credit remains good, the repayment can be spread over future years, becoming the authorities’ stable income yearly. As the economic environment improves in the future, repayment can gradually occur.
In addition, the authorities pledged “Five Tunnels and One Bridge” in 2004 to issue a HK $6 billion ($767 million) bond backed by tunnel and bridge tolls.
Scholar: Zero-COVID Didn’t Save More Lives or Economy
Similarly, Donald Low, Professor of Practice in Public Policy at the Hong Kong University of Science and Technology, told Ming Pao last week that under the COVID-19 pandemic, Hong Kong was forced to choose between contact with mainland China or international society, prioritizing the former. Due to mainland China’s zero-COVID policy conflicting with “global norms,” Hong Kong increasingly found itself being viewed and labeled as “just another mainland Chinese city.”Mr. Low argued that the zero-COVID policy had disastrous consequences for Hong Kong.
“Neither [did it] save more lives nor preserve the economy,” he said, adding that it had significantly damaged Hong Kong’s reputation as an international city, demonstrating to the world that Hong Kong’s policy-making had become less pragmatic and evidence-based.
He further argued that the trauma caused to the Hong Kong economy by “zero-COVID” is greater than that caused by the National Security Law.
“In early 2022, at the height of the ‘zero-COVID’ policy frenzy, tens of thousands of professionals in the business and financial sectors left Hong Kong, many of them for Singapore,” he wrote, citing opinions from his mainland Chinese friends in Singapore:
“It took the British 150 years to turn Hong Kong into an international financial center, while China [the CCP] only took two years [2022 and 2023] to turn Singapore into one.”
Prof. Low also pointed out that the Hong Kong authorities tended to attribute Hong Kong’s problems to external factors in many public statements and information, such as high U.S. interest rates and geopolitical tensions, while ignoring or downplaying local factors, such as mainland China’s economic slowdown.
He believed that these narratives not only damaged Hong Kong’s reputation as an international city and hindered Hongkongers’ understanding of the complex challenges facing the city but also might give the authorities an excuse not to engage in deeper self-critical reflection.
“If we can easily scapegoat the West or other countries for Hong Kong’s problems, then why bother making changes?,” he said to the paper.
He suggested that policymakers should conduct extensive research on how to adjust or even reshape Hong Kong’s economy to face the future, demonstrating to the world that Hong Kong is determined to continue as an essential node in the global economy and to give Hongkongers more reasons to be confident about the city’s future.
