Hong Kong Hands Out Cash, Cuts Duties Despite Larger Deficit

Hong Kong is set for back-to-back deficits but will give cash handouts and ease stamp duties for first time property buyers, to support an economy buffeted by prolonged COVID-19 restrictions, the city announced in its budget on Wednesday.

The global financial hub recorded a deficit of HK$140 billion in 2022/23, more than double the HK$56 billion it initially estimated, Financial Secretary Paul Chan said, when delivering the budget at the Legislative Council.

He forecast another deficit for 2023/24 of HK$54.4 billion.

Chan told legislators the city was at the beginning of an economic recovery, no longer shackled by stringent COVID measures that have isolated it from the rest of the world.

"I believe that Hong Kong's economy will visibly recover this year, and I remain positive," Chan said, noting he would take a "moderately liberal" fiscal stance this year to sustain the impetus for economic recovery.

"However, the economic recovery is still in its initial stage, and there is a need for our people and businesses to regain vigour."

The city's economy is expected to grow 3.5%-5.5% this year after contracting 3.5% in 2022, Chan said. Underlying inflation is expected to hit 2.5%.

Hong Kong will issue vouchers worth HK$5,000 ($637) per person to all adults this year, half the amount issued in 2022.

Chan flagged tax rebates in salaries and profits taxes, capped at HK$6,000, lower than the caps set for the previous budget.

STAMP DUTY "ADJUSTMENT"

Amid weakness in local property prices that fell more than 15% last year, the government also announced it would adjust stamp duties for first time local home buyers, with a "view to easing the burden on ordinary families" and properties valued at HK$10 million and less will benefit.

Chan, however, said other demand side residential measures introduced over the past decade to cool one of the world's hottest property markets, would remain unchanged.

The measure would benefit 37,000 buyers and cost the government HK$1.9 billion.

The Hang Seng Properties sub-index extended gains to as much as 1.3% in afternoon trade. Sun Hung Kai Properties, the largest developer in the financial hub by market cap, jumped as much as 3.4%, compared with a 0.2% fall in the main Hang Seng Index.

The sustainability of Hong Kong's fiscal reserves, however, remains a concern after authorities spent more than HK$600 billion containing the spread of COVID-19 and providing economic relief for businesses and families struggling with pandemic restrictions.

The budget shortfalls mean the public coffers would be depleted to HK$762 billion ($97 billion) in 2023/24 -- equivalent to 12 months of government expenditure -- around half the levels three years ago.

Hong Kong usually runs balanced budgets or surpluses, since its pegged currency system commits it to fiscal prudence.

"HAPPY" HONG KONG?

Since China's imposition of a sweeping national security law in 2020 that critics say markedly curbed individual freedoms, hundreds of thousands of residents have moved away, bringing further uncertainty and longer-term economic pressures on Hong Kong's regional competitiveness.

Analysts say exposure to a weakening global economy and the need to keep up with U.S. interest rate hikes to maintain the local currency's peg to the dollar will also lead to uncertainties over Hong Kong's economic recovery.

However, Chan said the opening of China's border would alleviate some pressure with business and logistics links normalising after the lockdowns.

He also said a "Happy Hong Kong" campaign would be launched for the general public, including gourmet food fairs and harbourfront carnivals that would help stimulate consumption.

He cited a speech by China's leader Xi Jinping, urging Hong Kong to "break new ground and achieve another leap forward" in the next five years, despite economic, social and political upheavals.

Among other initiatives, the government will introduce a new capital investment entrant scheme to attract talent.

($1 = 7.8488 Hong Kong dollars)