- Most eye-catching measure is HK$10,000 payment to each permanent resident aged 18 or older
- Taxpayers get concessions in property rates, salaries tax will be waived for some 1.95 million earners and businesses can get low-interest loans of up to HK$2 million
Hong Kong's embattled government on Wednesday offered cash handouts, tax breaks and other subsidies as part of a HK$120 billion package to help millions of citizens cope with the economic impact of months of social unrest and a worsening coronavirus crisis, while announcing the first budget deficit in 15 years.
The finance minister announced an eye-catching relief payment of HK$10,000 for each of the city's adult permanent residents as he revealed Hong Kong's deficit was to hit a record HK$139.1 billion for 2020/21, with a forecast that public coffers could linger in the red for the following four years.
While the city's fiscal reserves will stand at about HK$1.13 trillion by the end of March, Chan forecast they could shrink to HK$937.1 billion by March 2025.
But officials argued it was too early to say Hong Kong was starting to face structural fiscal deficits, as the economy could recover quickly from repercussions linked to the coronavirus once the outbreak ends.
Earlier, some economists also dismissed such fears, noting the city was sitting on huge fiscal reserves, and agreed the government should increase spending to stimulate the economy.
Financial Secretary Paul Chan Mo-po delivered his annual budget on Wednesday, mainly featuring measures to shore up the economy, with an official forecast for economic growth for 2020 between minus 1.5 per cent and 0.5 per cent, following a contraction of 1.2 per cent in 2019.
Chan forecast a deficit of HK$37.8 billion for 2019/20 " the first budget deficit in 15 years " and predicted the deficit for the next financial year would be HK$139.1 billion, or 4.8 per cent of the city's gross domestic product.
"In view of the tough economic environment, we will adopt an expansionary fiscal stance and make optimal use of our reserves to implement countercyclical measures," he said during his 90-minute speech.
"The objective is supporting enterprises, safeguarding jobs, stimulating the economy and relieving people's burden, so as to help Hong Kong tide over the difficulties," said Chan, whose bold relief measures came about two weeks after the government put forward a HK$30 billion package to help businesses and the needy ride out the recession.
Hong Kong's biggest budget deficit in history was about HK$63.3 billion in 2001/02. That was followed by a deficit of HK$61.7 billion in 2002/03 and HK$40.1 billion in 2003/04. The city reported a surplus of HK$21.4 billion in 2004/05.
"Although the deficit will hit an all-time high, a close look at its components shows that (most) of the deficit is related to the cash payout scheme and other one-off relief measures, which will not incur long-term financial commitments," Chan said.
The HK$10,000 cash handout had been called for by various parties across the political spectrum. The measure involves spending about HK$71 billion and is expected to benefit about 7 million people.
For individual taxpayers alone, Chan offered HK$32.1 billion in property rates and tax concessions. Salaries tax for 2019/20 will be waived for some 1.95 million earners, with savings capped at HK$20,000.
For businesses, low-interest loans of up to HK$2 million, repayable over three years, were put forward under a HK$20 billion scheme. That is on top of waiving profit tax for 2019/20, subject to a ceiling of HK$20,000, which is to benefit 141,000 taxpayers but will cost the government HK$2 billion. There will also be a HK$3.2 billion waiver scheme for rates for commercial properties, as well as subsidies for businesses to pay electricity bills, water and sewage charges.
Elsewhere, as usual, recipients of social security assistance will get an extra month's payment and the government will cover a month's rent for lower-income tenants in public housing estates, while those sitting the Diploma of Secondary Education Examination " a university entrance exam " in 2021 will take it for free.
While all eyes were on the relief measures, Chan also diverted some parts of his budget into strengthening the health care system. This would include taking forward the second 10-year hospital development plan to provide more than 9,000 additional beds to meet service demand up to 2036, and earmarking a total recurrent funding of HK$75 billion to the Hospital Authority in 2020/21.
Chan also touched on developing Hong Kong as a "smart city", earmarking HK$3 billion to take forward phase two of the Science Park expansion programme; injecting HK$345 million into a pilot scheme to encourage the logistics industry to enhance productivity through using technology; and allocating HK$1 billion to support businesses to conduct research and application on vehicle-related information technology.
With the huge spending, Chan sounded alarm over Hong Kong's long-term financial sustainability and hinted at the need to introduce new taxes or increase existing ones.
"In the four financial years starting from 2021/22 … the overall deficit in the consolidated account will range between HK$7.4 billion and HK$17 billion," Chan said.
"As for future increases in spending, we should be more mindful of the government's long-term affordability. Besides, we may need to consider seeking new revenue sources or revising tax rates. The one-off relief measures may also have to be progressively reduced."
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