Hong Kong flags handouts to speed up recovery from Covid-19 shock

HONG KONG – Hong Kong will give more handouts to consumers to support the city’s recovery from a prolonged economic downturn induced by Covid-19 restrictions, Financial Secretary Paul Chan announced in the 2023/2024 budget on Wednesday.

The global financial hub will issue vouchers worth HK$5,000 (S$850) per person to all adults in 2023, half the amount issued in 2022 as Mr Chan attempts to dial down fiscal spending with an eye on the city’s coffers.

He told legislators that Hong Kong was at the beginning of an economic recovery, no longer shackled by stringent Covid-19 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,” Mr Chan said.

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

Mr Chan also flagged a reduction in salary tax by 100 per cent, capped at HK$6,000, lower than the cap set for the previous budget.

He said the government will introduce a new capital investment entrant scheme as well, to attract talent.

Hong Kong is counting on increased cross-border business with mainland China, which has also given up enforcing Covid-19 rules.

The city spent more than HK$600 billion on various pandemic relief programmes over the past three years, forcing it to run rare budget deficits. It usually runs balanced budgets or surpluses, since its pegged currency system commits it to fiscal prudence, but still has ample reserves. 

Currently at about HK$800 billion, the reserves cover the administration’s spending needs for 12 months. 

The city’s economy is expected to grow 3.5 per cent to 5.5 per cent in 2023 after contracting 3.5 per cent in 2022, Mr Chan said. 

Analysts say its exposure to a weakening global economy and the need to keep up with United States interest rate increases to maintain the local currency’s peg to the US dollar still generate high levels of uncertainty about the intensity of Hong Kong’s recovery.

Here is a closer look at the stakeholders that may benefit from the budget, and those that may lose out:

Winners

Hong Kong residents, taxpayers: They are direct beneficiaries of the latest round of fiscal stimulus aimed at lifting the economy out of its pandemic slump.

Local retailers: Sa Sa International Holdings and Chow Tai Fook Jewellery Group are among the retailers to watch as a new round of consumption vouchers is expected to boost spending.

Hong Kong stock exchange: The bourse operator is looking at ways to allow uninterrupted trading during bad weather such as typhoons, ending the current practice of trading halts that cost the exchange hundreds of millions in revenue.

Real estate developers, agents: The tax rate for first-time buyers of properties under HK$9 million will be reduced to alleviate their burden. That should lift the residential property market, which saw prices slump in 2022 amid higher interest rates.

Airlines: The government will reduce or waive airport charges and provide incentives for carriers to resume suspended flight services or launch new routes. Airlines such as Cathay Pacific Airways are expected to benefit.

Losers 

Tobacco companies, smokers: The government is raising taxes on tobacco products by 60 Hong Kong cents per cigarette – the first substantial increase in 10 years – to help reduce the number of smokers.

Jockey Club: The city proposes to impose an annual special soccer betting duty of HK$2.4 billion on sport and betting entertainment provider Hong Kong Jockey Club for five years. That may affect its donations to charities and communities in need.

Foreign talent: The latest budget did not mention any substantial measures on attracting overseas talent, even as the city grapples with an ongoing brain drain. Chief Executive John Lee focused on this topic in his speeches in 2022. REUTERS, BLOOMBERG