Hong Kong’s budget address

Seldom had the HKSAR’s budget address been under such scrutiny by the political sphere and the public at large, and perhaps never had the exercise been as tricky as this year. Financial Secretary Paul Chan had to make a number of difficult arbitrages, and in his own words, had to “cook the meal depending on the food available”.

The economic situation in the SAR is dire. Hong Kong has, for the first time in its history, experienced two years of recession in a row, and the unemployment rate has doubled to reach 7.0%. The Gross Domestic Product (GDP) contracted by a record -6.1%, with a sharp decline of 36.8% in exports of services. This dramatic situation called for strong counter-cyclical measures, which is what Chan announced. The planned deficit for the year is HK$101.6bn, half that of last year, but still a rarity in the SAR’s history after 15 consecutive years of surpluses.

Unsurprisingly, Chan detailed counter-cyclical support measures, and those were the most awaited. A HK$5k e-voucher will be handed to all eligible permanent residents and some newly arrived Mainland immigrants, the salaries tax has been reduced up to HK$10k (half the reduction of last year), and allowances for some categories of the population have been increased. This decrease in the reduction of the salary tax brought criticism from all sides of the political exchequer, with Paul Chan himself saying: “I have to say sorry to middle-class families.”

Other measures include the continuation of the waiver of business registration fees, the reduction of the profit tax up to HK$10k, granting of up to HK$6.2mn low-interest loan available for SMEs with 100% guarantee by the government, and a number of other targeted measures such as HK$1bn for CreateSmart (creative industries), HK$375mn for the Hong Kong Trade Development Council (HKTDC), and HK$934mn to support tourism. HK$9.5bn has been allocated to the Innovation and Technology fund, and HK$800mn for country parks.

To fund this huge spending, Hong Kong issued HK$24bn in silver bonds (whose age limit was lowered from 65 to 60 years old) and $15bn in iBonds (inflation indexed bonds). The government also plans on issuing green bonds totalling HK$175.5bn over the next five years. Chan also announced an increase in the stamp duty on stock transactions from 0.10% to 0.13%.

Another measure which was passed in the annex of the budget (this means that Mr. Chan did not read it during the address) was a whopping HK$8bn allocated for national security. This move surely will raise some questions inside the decapitated opposition movement.

Further readings:

Hong Kong budget 2021-22: HK$5,000 vouchers, fewer sweeteners and a five-year deficit, but still an upbeat 5.5 per cent growth forecast

The 2021-22 Budget - Budget Speech

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