Latest Hong Kong budget plan aims to support economic recovery, address social and environmental needs, and promote long-term development
The Hong Kong government has recently announced its budget plan for the fiscal year 2023, which aims to support economic recovery, address social and environmental needs, and promote long-term development in Hong Kong as it moves on from the pandemic. The plan includes various measures to drive economic activity, such as the issuance of consumption vouchers and tax reductions, as well as initiatives to support enterprises, including the establishment of an international trade centre and the expansion of the innovation and technology industry.
The government also plans to invest in infrastructure projects and green initiatives to promote sustainable development, and to provide relief measures to support individuals and businesses affected by the COVID-19 pandemic. This article provides a detailed summary of the key areas covered in the Hong Kong government’s budget plan for the fiscal year 2023:
- Hong Kong’s Economic Climate in 2022: An Overview
In 2022, the Hong Kong economy contracted by 3.5% due to the outbreak of the fifth wave of the pandemic and tightened financial conditions. Private consumption expenditure gradually improved since the second quarter, but still recorded a drop of 1% for the year. The overall investment expenditure fell by 8.5% due to the subdued economic outlook and rising borrowing costs. The labour market, however, showed improvement with the unemployment rate gradually declining to 3.4% after an initial increase to 5.4%. Inflation remained moderate and the underlying inflation rate for last year was 1.7%, despite notable increases in the prices of food, energy, clothing, and footwear.
- The Future of Hong Kong’s Economy: Predictions for 2023 and Beyond
The global economy is expected to face challenges due to the sharp tightening of monetary policies by major central banks and heightened geopolitical tensions, leading to a forecasted slackening of global economic growth to 2.9% this year. Hong Kong’s exports of goods will continue to face severe challenges, but accelerated growth of the Mainland economy and the lifting of restrictions on cross-boundary truck movements are expected to alleviate some pressure.
The Hong Kong economy is forecasted to grow between 3.5% to 5.5% this year, with underlying inflation and headline inflation rates predicted to rise to 2.5% and 2.9% respectively. In the medium to long term, the Hong Kong economy is expected to have abundant opportunities, and the government aims to strengthen competitiveness, identify new growth impetus and expand economic capacity to support growth. The economy is forecasted to grow by an average of 3.7% per annum in real terms from 2024 to 2027.
- Boosting Domestic Consumption: Hong Kong’s Plan to Issue Consumption Vouchers
To stimulate domestic consumption and support small and medium-sized enterprises (SMEs), the government plans to issue consumption vouchers worth HKD 5,000 (about USD 640) to eligible individuals. These vouchers can be used at participating retail, catering, and service outlets in Hong Kong. The government hopes that this measure will boost economic activity and provide support for the hardest-hit sectors during the pandemic.
- Nurturing Business Growth: How Hong Kong is Supporting its Enterprises
To ease the operating pressure of businesses, the Hong Kong government has proposed several measures including reducing profits tax for the year of assessment 2022/23 by 100%, subject to a ceiling of $6,000, providing rates concession for non-domestic properties for the first two quarters of 2023-24, subject to a ceiling of $1,000 per quarter for each rateable property, and granting 50% rental or fee concession to eligible tenants of government premises and eligible short-term tenancies and waivers under the Lands Department for six months until the end of 2023.
These measures will benefit a total of 134,000 businesses together with 430,000 non-domestic properties and reduce government revenue by approximately $2.46 billion. The application period of all guarantee products under the SME Financing Guarantee Scheme (SFGS) will also be extended from end-June 2023 to end-March 2024 to support the financing needs of small and medium-sized enterprises. The government will launch new schemes to offer fully guaranteed loans for eligible passenger transport operators and licensed travel agents and inject $30 million into the Information Technology Development Matching Fund Scheme for Travel Agents to encourage the industry to undergo upgrade and transformation.
- Enhancing Global Trade: Hong Kong’s New International Trade Centre
Hong Kong is well positioned to capitalise on the dual engines of the Belt and Road (B&R) Initiative and the Guangdong-Hong Kong-Macao Greater Bay Area to promote commercial exchanges between the Greater Bay Area (GBA) and the Association of Southeast Asian Nations (ASEAN), enhance its strategic positioning in global and regional economy and trade, and strengthen its role as a connecting platform for international circulation between our country and the rest of the world.
The Hong Kong government will provide additional funding to the Hong Kong Trade Development Council (HKTDC) and inject $500 million into the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund) to help SMEs seize opportunities arising from the B&R Initiative and GBA development and explore markets outside Hong Kong. Hong Kong is actively seeking to expand its global economic and trade networks by entering into free trade and investment agreements, continuing to work with emerging economies as priority targets, and seeking to join the Regional Comprehensive Economic Partnership (RCEP) to enhance Hong Kong’s status as a regional trade centre.
- Revising Budget Estimates: Changes to Hong Kong’s Fiscal Position
The Hong Kong government is facing a significant shortfall in revenue from land premium and stamp duty which has led to a higher-than-expected deficit of around $140 billion for the current financial year, with fiscal reserves expected to be around $820 billion by March 31, 2023.
Due to the massive expenditure involved in counter-cyclical measures and anti-epidemic work, the revised estimate of total government expenditure for 2022-23 has significantly increased by 16.8% compared to the previous year, however, the civil service establishment is maintained at the present level with departments enhancing effectiveness and efficiency through reprioritisation, internal redeployment and streamlining of work processes.
- Taxation Transformation: Hong Kong’s Plan to Update its Tax Regime
The government has proposed several tax reduction measures to support different sectors. For enterprises, profits tax will be reduced by 100%, subject to a $6,000 ceiling for the 2022/23 assessment year. The same reduction will apply to salaries tax and tax under personal assessment for the general public and employees. The tax deduction for the Mandatory Provident Fund voluntary contributions made by employers for their employees aged 65 or above will be increased from 100% to 200% to encourage the employment of elderly employees.
For the digital economy, tax deduction will be provided for spectrum utilization fees paid by telecommunications network operators who successfully bid for radio spectrum. To encourage more patented inventions in the I&T sector, a “patent box” tax incentive will be introduced. Finally, a 100% guarantee loan scheme for the taxi trade will be put in place to incentivize the switch to battery electric taxis as part of the government’s green measures.
Overall, Hong Kong’s economic climate in 2022 was impacted by the pandemic and tightened financial conditions, but the labour market showed improvement and inflation remained moderate. Looking ahead to 2023 and beyond, the Hong Kong government is implementing measures to boost domestic consumption, support business growth, enhance global trade, and update its tax regime. The government is also facing a significant shortfall in revenue but is maintaining the civil service establishment while enhancing effectiveness and efficiency. With abundant opportunities in the medium to long term, the Hong Kong economy is forecasted to grow by an average of 3.7% per annum in real terms from 2024 to 2027.
For more information, contact Alpadis Group.