Hong Kong government unveils expansionary Budget to drive innovation and technology

Financial Secretary Paul Chan said in his annual Budget speech on Feb 28, 2018, that innovation and technology is undoubtedly an economic driver in future.
Financial Secretary Paul Chan said in his annual Budget speech on Feb 28, 2018, that innovation and technology is undoubtedly an economic driver in future.PHOTO: EPA-EFE

SINGAPORE - Taking what analysts called "bold" and "targeted" approaches, Hong Kong has unveiled an expansionary Budget that seeks to bolster innovation through a spending of over HK$50 billion (S$8.5 billion), as well as provide immediate relief to citizens in areas like salaries tax, healthcare and housing.

Financial Secretary Paul Chan said in his annual Budget speech on Wednesday (Feb 28) that innovation and technology is undoubtedly an economic driver in future.

"To shine in the fierce innovation and technology race amid 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," Mr Chan said.

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 (R&D).

In particular, the government will fund the setting up of two research clusters on healthcare technologies, artificial intelligence and robotics technologies, in order to attract the world's top scientific research institutions and technology enterprises to Hong Kong.

It is also allocating spending to Cyberport to enhance the support for start-ups and promote the development of 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 that while he welcomed the "balanced Budget", he said the government could do more in terms of tax policies to incentivise 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 reliefs.

For example, salaries tax has been cut by 75 per cent, capped at HK$30,000; tax allowances increased for children and for supporting parents or grandparents; property rates waived for all four quarters; cash handouts announced for poor students; and hospital beds to be increased.

Ms Lau described this year's Budget as "bold and targeted" but she was disappointed that there was a lack of tax measures to make it easier for businesses to operate in Hong Kong.

Analysts agree that the Budget this year marks a departure from the conservative stance taken in previous years. Public expenditure in the past was kept at or below 20 per cent of gross domestic product.

But Mr Chan said the spending this year and in the coming years "will be slightly higher than 21 per cent of our GDP".

Mr Chua Han Teng, head of Asia country risk at BMI Research, noted that the Budget is forward looking as "the government is looking to ensure a fiscal surplus over the coming years".

Investments in the long-term economic development of the city in innovation and education are to overcome headwinds posed by the structural slowdown of the mainland Chinese economy, he said, adding that the government did not overlook the social challenges faced by the population.

In terms of housing, Mr Chan said the government is adding 100,000 units of public housing in the next five years while the private sector will, on average, complete about 20,800 residential units annually in the next five years.

The initiatives announced on Wednesday came on the back of the city's record surplus of HK$138 billion in the 2017 financial year.

Given 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 economy grew 3.4 per cent in the fourth quarter of 2017 from a year earlier.

For the full year, the GDP grew at the fastest pace since 2011 - 3.8 per cent - up from 1.9 per cent in 2016.