In what analysts has described as "bold" and "targeted" approaches, Hong Kong unveiled an expansionary Budget to bolster innovation through spending more than HK$50 billion (S$8.5 billion), and to provide relief to citizens in areas such as salaries tax, healthcare and housing.
The city's Financial Secretary Paul Chan, in his annual Budget speech yesterday, said that innovation and technology is undoubtedly an economic driver. "To shine in the fierce innovation and technology race amidst keen competition, Hong Kong must optimise its resources by focusing on developing its areas of strength, namely biotechnology, artificial intelligence, smart city and financial technologies (Fintech), and forge ahead according to the eight major directions set out by the Chief Executive."
He pledged to set aside HK$50 billion this year, on top of the HK$10 billion announced last year, to fund the growth of innovative and creative industries, as well as research and development.
In particular, the government will fund two research clusters on healthcare technologies, artificial intelligence and robotics technologies, to attract the world's top scientific research bodies and technology enterprises.
It is also giving money to Cyberport to enhance support for start-ups and promote the development of a digital technology ecosystem.
The move to go big on innovation and technology comes as Hong Kong struggles to compete with Shenzhen and Singapore in these areas.
PwC Hong Kong partner Jeremy Choi told The Straits Times he welcomed the "balanced budget", but said the government could do more in terms of incentivising companies to develop technologies in the city.
Even though there were few cash handouts this year, Ms Ayesha Lau, managing partner at KPMG Hong Kong, noted that 40 per cent of the expenditure was allocated to social welfare and individual relief.
HK Budget highlights
• HK$138 billion (S$23.3 billion)
• 60% to be invested in future, 40% to go to relief measures.
INNOVATION AND TECHNOLOGY: OVER HK$50 BILLION EARMARKED
• Funds to go into the Hong Kong-Shenzhen Innovation and Technology Park; the Innovation and Technology Fund that supports research and development (R&D); two research clusters on healthcare, as well as artificial intelligence and robotics technologies; Cyberport to attract MNCs to set up R&D units, help start-ups and fund e-sports growth; recruitment.
FINANCIAL SERVICES INDUSTRY: HK$500 MILLION
• To grow the financial services industry in the next five years, provide aid for bond market development, fintech, green finance, manpower training, among others.
• Dual-class share listings will be in place in Q2 this year.
FOR THE COMMUNITY
• Salary and profit tax rebates of up to 75 per cent, capped at HK$30,000.
• Widening tax bands.
• Higher tax allowances for families with children and for supporting parents and grandparents.
• Property rate waiver for four quarters of 2018-2019.
• Extra allowance for social security recipients.
• One-off grant of HK$2,000 to students.
For example, middle income families will benefit from the 75 per cent cut in salary tax that has been capped at HK$30,000; tax allowances for children and for supporting parents or grandparents have been raised; property rates are waived for all four quarters; and cash handouts given to poor students. The government will also increase the number of hospital beds and residential units.
Analysts, agreeing that this year's Budget marked a departure from the conservative stance taken previously, called the move "bold" and "targeted" as spending for FY2018 will rise to 21 per cent of gross domestic product (GDP), higher than the typical ceiling of 20 per cent.
Ms Grace Tang, a business tax advisory partner at EY, believes the investments in innovation "will eventually raise competitiveness which will then draw companies to the city".
Still, many felt that there were misses in the Budget.
KPMG's Ms Lau was disappointed with the lack of tax incentives to make the city more business-friendly, while Deloitte's China tax partner Sarah Chan noted that tax incentives to attract firms to set up their regional headquarters in Hong Kong were missing, as were more sweeteners for start-ups in the technology industry.
The initiatives announced come on the back of the city's record surplus of HK$138 billion in the 2017 financial year.
On the back of a promising external environment, Mr Chan said he expects the city's economy to grow by between 3 and 4 per cent this year, while headline inflation rate is projected to be 2.2 per cent, with an underlying inflation rate at 2.5 per cent.
The Hong Kong economy grew 3.4 per cent in the fourth quarter from a year earlier. For the full year, GDP growth was the fastest since 2011 at 3.8 per cent, up from 1.9 per cent in 2016.