The Financial Secretary, Paul Chan, has delivered a very different 2020-21 financial budget to the usual budgets Hong Kong people have come to expect. It is different in that it proposes a record-setting HK$10,000 cash hand-out to each and every Hong Kong permanent resident aged 18 or above. It is also different in that it sets a record deficit of HK$139.1 billion for the coming year. Finally, it is different in that it heralds four more years of operating and consolidated deficits in the medium term and, perhaps, beyond.
These different measures are driven by the very different times that Hong Kong people have experienced of late, marked by the China-United States trade conflict, the local social unrest, and the impact of the COVID-19 coronavirus.
Against this backdrop, the Hong Kong Institute of CPAs (and hopefully Hong Kong people at large) generally embraces the package of stimulus and relief measures proposed in the budget and, consequentially, the deficits, while this is not without reservations.
Appropriate responses for challenging times
The HK$10,000 cash hand-out may be the signature policy of the financial secretary’s stimulus and relief package of HK$120 billion – but it is not the only one. Residents will be eligible for other benefits including a tax rebate, rates waiver, an additional month social security allowance, and/or a one-month rental subsidy for public housing. However, we are certain that there are less-fortunate people out there (including the so-called “N-nothings”) who may need more help from the government. In this regard, in our budget submission we proposed the government should take good care of them via the Community Care Fund.
For the business community, the package provides a range of measures including low interest loans, profits tax rebate, waiver of rates and fees, subsidies for utilities bills and concessions on rental for government properties.
These measures are in addition to the government’s earlier commitment of HK$30 billion to the Anti-epidemic Fund that began operating in February.
As always, to address the dire needs of the community, time is of the essence. We would urge the government to implement the measures speedily and in an efficient manner.
“While we have no doubt about Hong Kong’s financial health in the short term… one may wonder as to whether Hong Kong is stepping onto the path leading to a structural deficit trap.”
Aside from the short-term stimulus and relief package, Chan also proposed a raft of measures in a bid to strengthen our trade and industry in the medium- and long-term and to protect our environment, including some measures which the Institute and community have long called for. Such measures include: to establish a limited partnership regime and provide tax concession for carried interest issued by private equity funds, to waive stamp duty on exchange-traded fund transactions, and to promote electric transportation.
On the other hand, the proposed record-high budget deficit for 2020-21 and four more years of both operating and consolidated deficits have certainly raised the eyebrows of a lot of people. While we have no doubt about Hong Kong’s financial health in the short term – with over HK$1.1 trillion in financial reserves – one may wonder as to whether Hong Kong is stepping onto the path leading to a structural deficit trap. It is hence incumbent on the government to address the situation before it is too late.
We would urge the government to exercise diligence in keeping its expenditure in check. However, in view of the rapidly aging population and in the interest of not compromising the quality of government services, one can only expect government expenditure to continue growing at a faster pace.
Review and progress
In response, the government should re-evaluate the long-term viability to rely on capital revenues (mainly from land sales) to subsidize its operating expenditure, and its implications for other social policies. It should also explore effective ways to increase and diversify its revenue sources. The Institute has long been advocating a holistic review of Hong Kong’s tax system, after becoming concerned about the narrow tax base and the lack of a comprehensive review for over 40 years. Furthermore, the Organization for Economic Cooperation and Development’s proposal to impose a global minimum tax rate only heightens the need for the review as the competitiveness of Hong Kong’s tax system could be undermined. We are glad that the financial secretary has acknowledged the need for work to be done in this regard, and indicated his plan to invite scholars, experts and members of the business community to tender advice. We look forward to contributing our expertise to the consultation.
Overall, we welcome this very different budget, and believe that it is appropriate for this very different time that we find ourselves living in.