Hong Kong may take ‘year or two’ extra to return to budget surplus amid sluggish economy, reduced land sales: Paul Chan
- Finance chief says surplus may take longer than original estimate of 2025-26 financial year
- Secretary also offers assurances that efforts to secure new land will continue despite developers’ lack of appetite
Hong Kong may take “a year or two” longer than expected to return to a budget surplus, according to the finance chief, who attributed the delay to a sluggish city economy and reduced land sales limiting government income.
Looking ahead, Chan said the presidential election in the United States could create headwinds for Hong Kong’s economy, but the expected end of the interest rate hike cycle and possible better growth in mainland China might provide a boost at home.
The secretary was speaking at a televised consultation session before next month’s budget speech, where many attendees said they were concerned about the deficit.
One audience member, who identified himself only as Kwan, said he was worried the city would be forced to rely on borrowing to sustain public spending in the long run.
But Chan said authorities had taken a “fiscal consolidation” approach to cut spending and that a return to a surplus was on the horizon, but it would take “a year or two” longer than earlier expected.
“If you look at this year’s budget, it was estimated that it would occur in 2025-26,” he said. “Now, due to various reasons, such as lower stamp duty and land revenues this year, as well as a soft economy, it may take a little longer.
“We are determined to consolidate our finances and restore a balanced budget within a few years without affecting people’s livelihood, minimising the impact on everyone.”
Chan added that Hong Kong would adopt the global minimum corporate tax initiative, which could bring in additional annual revenue of HK$15 billion from 2026.
He said increases in some government fees and property rates for higher-end homes could ensure further income boosts.
The government predicted a full-year deficit of HK$54.4 billion for 2023-24 in last February’s budget. But Chan later conceded the shortfall would probably be more than HK$100 billion.
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He did not give a new deficit projection on Saturday, but said government coffers were estimated at about HK$720 billion by the end of 2023-24, more than HK$110 billion lower than the year before.
The government only earned HK$12.3 billion from land-related revenue over a three-quarter period that ended last December, compared with its full-year target of HK$85 billion. No new residential and commercial plots are available for sale in the final quarter.
Chan said the public should not worry about “short-term” fluctuations driven by market demand, adding the government would forge ahead with effort to find new land.
“If we’ve secured some land, it’s OK if we put it on hold when market conditions are not right,” he said. “But when the property market rises and there is demand in the market, we can offer the land [for sale] immediately to alleviate the pressure of rising property prices.”
The secretary also promised the government would not reduce support for those in need under the consolidated spending approach, but expressed reservations about waiving rents for public housing tenants or bringing back the consumption voucher scheme.
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“Taking into account the financial situation and a gradual return to normality of the economy, the circumstances are now different and the considerations are no longer the same as those in the past,” he said. “We will study this further.”
Chan said authorities were also looking at other potential revenue streams, such as a capital-gains tax, but he emphasised that nothing would be introduced without public consultation.
“In reviewing our taxation, we need to also look at our international competitiveness and developments around the world,” he said. “If we are making adjustments, we must avoid resulting in a negative [impact] because of an increase [in tax].”
Some audience members offered bold suggestions to boost the public coffers. One attendee, surnamed Poon, said senior officials should take a 20 per cent pay cut. Calling prices in Hong Kong uncompetitive, he added: “I’m going to Shenzhen and spending again right after this event”.
Another audience member supported the introduction of a departure tax to deter consumers from leaving the city to spend, but the finance minister cautioned that imposing any levies on travellers would raise concerns from the retail sector and potentially hinder Hong Kong’s further integration with the mainland.
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Billy Mak Sui-choi, an associate professor at Baptist University’s department of accountancy, economics and finance, said the government could have easily saved billions by axing some sweeteners. Last year’s consumption voucher scheme cost taxpayers HK$33 billion.
Mak told the Post after speaking at the session along with Chan that with fiscal reserves equivalent to about eight to 10 months of expenditure, the government still had a buffer zone before it had to consider the more difficult choices to close the budget gap.
“We can issue bonds but it’s the purpose that matters most,” he said. “If we borrow money to merely spend it, of course it is not right. But if we borrow money to make profitable investments, earning a return on top of the principal and interests, then we should do it today.”
