Most of S$139bn HK budget to fight Covid-19

The measures were announced as hundreds of bars, restaurants and small retailers warned they were months away from closure. PHOTO: AFP

HONG KONG -  The territory has announced a HK$807.3 billion (S$139 billion) budget for next year with most of the money devoted to dealing with the Covid-19 situation in the territory which deteriorated recently.

The budget contains handouts, subsidies and even a temporary law to help residents and businesses hit by the pandemic and comes despite the fact that economic growth is projected to slow this year.

Saying that “fighting the epidemic is our overriding mission at present,” Financial Secretary Paul Chan on Wednesday (Feb 23) laid out the initiatives which remain centred on the government’s zero-Covid policy and were in line with what some analysts expected.

Hong Kong’s economy recovered last year, growing by 6.4 per cent. This was a sharp turnaround from the previous two consecutive years. 

The unemployment rate dropped from a high of 7.2 per cent early last year to 3.9 per cent in January this year.

Mr Chan expects the economy to improve in the second half of 2022, with the city registering growth of between two and 3.5 per cent in gross domestic product for the year.

Headline inflation rate and the underlying inflation rate this year is expected to be 2.1 per cent and two per cent respectively.

“As long as the recent wave of the epidemic can be gradually put under control, and the status of “dynamic zero infection” can be maintained down the road, consumption and investment demand will likely gather steam again. 

“A stabilised epidemic situation will also create favourable conditions for the gradual and orderly resumption of quarantine-free travel between the mainland and Hong Kong, thereby injecting greater impetus into the economy,” said Mr Chan.

He added that Hong Kong’s economy could grow by an average of three per cent per annum from 2023 to 2026, which is a notch up from the 2.8 per cent recorded during the decade before the pandemic.

The government is setting aside HK$6.6 billion to create 30,000 time-limited jobs. Eligible residents will receive HK$10,000 in electronic spending vouchers while those who have lost their jobs can expect a separate HK$10,000 handout. 

The tax on salaries for the current fiscal year, ending in March,  will be cut by 100 per cent, capped at HK$10,000.

The budget also contains a HK$1,000 subsidy for electricity as well as concessions on rates for domestic properties, transport subsidies and tax deductions for domestic rental expenses, among other things. 

In an effort to help small and medium enterprises (SMEs), an unprecedented temporary law will be introduced to deter landlords from terminating contracts of tenants of specific sectors or suing them, if they fail to pay rents on time.

The relief measure is valid for three months and can be extended for another three months only.

The law, to be gazetted on Friday, includes a fine of HK$50,000 to three months’ rent owed for errant landlords. It will cover premises now subject to Covid-19 restrictions, including retailers and restaurants, as well as those forced to shut until late April such as hair salons, bars, cinemas and gyms.

“The arrangement will provide enterprises in deep water with breathing space and help secure employment,” Mr Chan said, adding that the Hong Kong Monetary Authority will be in close contact with banks to exercise flexibility if landlords’ repayment ability is affected. 

Other measures to help businesses include the lowering of the tax on profits for the current fiscal year by up to HK$10,000, a waiver of business registration fees for the new fiscal year as well as 75 per cent of water and sewage charges, and increasing the amount of loans for enterprises under the SME Financing Guarantee Scheme.

Hong Kong is projected to record a surplus of HK$18.9 billion in the current fiscal year, up from the original forecast of a HK$101.6 billion deficit. 

Mr Chan pointed out that the surprise outcome was largely due to higher-than-expected revenue as a result of land sales and taxes on profits. 

Ms Agnes Wong, tax partner at PwC Hong Kong, said: “The financial position of the government is projected to remain in surplus position for the next few years, upon successful control of the epidemic.”

Analysts agreed that the consumption vouchers would stimulate local consumption and speed up economic recovery. 

In response to a query, OCBC Wing Hang Bank said the  vouchers would likely support hard-hit sectors just as they did last year. Vouchers worth HK$5,000 were doled out last year.

“The retail sales index was up by around 10 per cent year-on-year from August to October, when the vouchers were distributed,” it said.

Mr John Marrett, senior analyst at the Economist Intelligence Unit, noted signs of a pivot towards more progressive tax policies on property to capture more of the gains from speculation which he said “would be a new path for Hong Kong if the government follows this trend further in future budgets”. Still, other areas had low and relatively flat tax schedules, he said.

Ms Wong believed execution was key to how well other new funding initiatives such as those covering green bonds, family businesses, and fintech, would work.

“Specifically, how quickly and how effective the measures can be put into implementation. For example the funding application process, screening criteria and ensuring the right policy is for the right people,” she said.

Hong Kong on Wednesday recorded more than 8,600 new infections, about a thousand more than the previous day, bringing the total number of cases in the territory to over 75,100 and more than 270 deaths during the pandemic.

Budget Highlights 

-  HK$67.5 billion (S$11.6 billion)for dealing with Covid-19, including more funds for testing, more vaccines and other measures. ,

- electronic consumption vouchers worth HK$10,000 for  eligible Hong Kong permanent residents and new arrivals aged 18 and above.

- residential electricity subsidy worth HK$1,000 for eligible residents.

- threshold for public transport fare subsidy scheme threshold lowered from HK$400 to HK$200 from May to October this year.

-  tax payable for salaries reduced by 100 per cent, capped at HK$10,000.

- 90 per cent loan for flats worth up to HK$10 million for first time buyers, which is HK$2 million more than now.

- temporary law to be passed banning landlords from terminating contracts with, or suing tenants of specified sectors, if they fail to pay rents on schedule.

- creation of 30,000 time-limited jobs 

-  profit tax for enterprises in FY21-22 (ending March) cut by 100 per cent, capped at HK$10,000.

- business registration fees for FY22-23 (beginning April)

-  a HK$5 billion new investment fund known as the Strategic Tech Fund to be set up; another HK$5 billion used to set up a Greater Bay Area Investment Fund focusing on investment opportunities in the Guangdong-Hong Kong-Macau Greater Bay Area (GBA).

- tax concessions for family investment management entities managed by single-family offices.

-  HK$1.26 billion to support and develop the tourism industry.

- HK$100 billion set aside to expedite the roll out of infrastructure works relating to land, housing and transportation within the Northern Metropolis. 

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