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According to the city’s finance chief, who presented growth plans that include an artificial intelligence centre, Hong Kong would reduce public spending and restore fiscal balance by mid-2027 following a series of massive deficits.
As Hong Kong faces its most difficult fiscal test in 30 years—annual deficits exceeding US$20 billion in four of the last five years—officials are under pressure to balance the books.
The economic downturn in China and the impending trade war between the US and China, which follows President Donald Trump’s initial round of tariffs, are also factors being considered.
Similar to the 2.5 per cent growth in the previous year, the economy is predicted to rise by two to three per cent this year.
In his yearly budget address, Financial Secretary Paul Chan stated that the government will limit expenditures to minimise the effect on livelihoods and public services.
According to him, there would be a “cumulative reduction” of 7% in government recurrent spending through 2027–2028.
“It gives us a clear pathway towards the goal of restoring fiscal balance in the operating account… within the current term of the government,” which would conclude in June 2027, he stated.
In addition to announcing a salary freeze for all government agencies, Chan stated that by April 2027, about 6% of the country’s 170,000-person civil service would be reduced.
A cap on a transit subsidy for individuals over 60 is one of the additional spending cuts.
Land-related revenue has traditionally been a source of funding for Hong Kong’s government, but this year it fell to US$1.7 billion, the lowest level in 20 years.
Chan stated that the asset market in Hong Kong was “under pressure” and that this year, land-related revenue will increase to US$2.7 billion.
Due to high office vacancy rates, the government announced that it will not be offering commercial land for sale in the coming year.
Credit: Investing.com
– ‘Northern Metropolis’ –
Hong Kong will also reduce the stamp duty on residences to under US$515,000 to stem the real estate slump.
There were “fewer policy measures aimed at directly boosting property demand” in the budget, according to Marcos Chan of the commercial real estate firm CBRE Hong Kong.
To establish the city as “an international exchange and cooperation hub for the AI industry,” the finance minister announced on Wednesday that the government will invest HK$1 billion (US$129 million) to establish a Hong Kong AI Research and Development Institute.
The city is keen to entice foreign tourists again after political turmoil and pandemic-related restrictions damaged its image.
The government’s tourism authority would receive US$159 million to promote “distinctive tourism products” like horse racing and panda tourism.
Since the city’s authorities were still cracking down on dissent, there was no public protest to Chan’s address.
One of the few pro-democracy organisations, the League of Social Democrats, cancelled their annual pre-budget petition, citing “strong pressure.”
Top officials’ salaries would be slashed, government accountability would be increased, and expensive infrastructure projects like the “Northern Metropolis” would be placed on hold.
However, Chan stated on Wednesday that the government will move on with the project, which intends to bring Hong Kong and its neighbour Shenzhen closer together.
“The Northern Metropolis has to develop more quickly. He stated, “It is an investment in our future.”
To finance its infrastructure goals, the government would issue bonds of up to US$25.1 billion annually until 2029–2030.
Last month, Hong Kong was described as “recovering gradually after a protracted period of shock” by the International Monetary Fund.
Wednesday saw a more than three per cent increase in the city’s benchmark Hang Seng Index, which has risen to a three-year high due to a recent boom in mainland tech businesses.
