After around three years in which the pandemic held sway, most governments have now moved towards a policy of “living with COVID,” on the basis that the virus cannot be completely eliminated, and given more widely available vaccines and quite extensive immunity within communities where the pandemic was widespread, its impact has reduced substantially. While many governments are trying to capture opportunities in the post-COVID recovery period, the world is facing other major challenges. Among these are inflation, due mainly to supply chain disruption and increased energy prices, resulting from the conflict in Ukraine, among other factors, rising interest rates, aimed at curbing the inflation, as well as increased government debt, following the large-scale subsidies handed out during the worst period of COVID.
Hong Kong has maintained some pandemic-related restrictions, after suffering its most severe wave in early 2022, having been relatively unscathed before that, and Mainland China and Macau had maintained more restrictive policies until late December 2022, which made travel between Hong Kong, the Mainland and Macau difficult. While Hong Kong has gradually relaxed most restrictions for visitors and has begun to open up for major international events, the rising tide of uncertainties in the global economy, the United States-China tensions and geopolitical conflicts, on top of internal constraints, such as the “brain drain,” low birth rate, weak markets and the housing shortage, continue to affect Hong Kong’s economy and confidence, delaying the return of the “feel good factor.”
In addition, business leaders have concerns that Hong Kong has been losing its competitiveness due to the reduced international connectivity over the past three years and some of the business lost may not return in the foreseeable future. The situation is exacerbated by the outflow of productive members of the workforce over the past couple of years.
While economic activities in Hong Kong are recovering gradually, the Hong Kong Institute of CPAs estimates that the deficit for 2022/23 will reach around HK$114 billion. Fiscal reserves are expected to stand at HK$843 billion, equivalent to 12 to 13 months of government expenditure, at the end of March 2023.
To help address the issues, Hong Kong badly needs a “shot in the arm” to regain its vibrancy and attractiveness to overseas investors. A major international financial and investment summit was successfully held in November 2022 and, following that, the international Rugby Sevens tournament took place for the first time since 2019. These are certainly positive signs, but more needs to be done. The time is right for the government to review Hong Kong’s investment promotion strategies, tax policies and overall competitiveness to enable Hong Kong to reconnect with the other parts of the world, as well as reinvigorate its status as a leading international financial centre.
Against this background, in January, the Institute submitted its Tax policy and budget proposals 2023-24 to the Financial Secretary for consideration in the 2023-24 Budget. Under the overall title, “Reconnect & Renew,” it contains a range of recommendations covering three main areas: 1) reinforcing Hong Kong’s international status and competitiveness; 2) making Hong Kong a more livable city and community measures; and 3) measures to achieve carbon neutrality and sustainability goals.
Reinforcing Hong Kong’s international status and competitiveness
With keen global competition in the post- COVID-19 era, Hong Kong should keep up the efforts to reinforce its traditional competitive advantages, which include a favourable business environment, sound legal system, free flow of capital, advantageous geographical location, wealth of experience as a “connector” between the Mainland and the international community, and its long-standing reputation as an international financial centre.
In the meantime, Hong Kong is facing fierce competition in the global push for talent. The need for talent is acutely felt across all fields – from finance, technology to the creative industries. The pandemic, emigration, the ageing population and other factors have caused manpower shortages in many traditional and emerging industries. In order for Hong Kong to attract overseas talent, fully reopening the city’s borders and restoring normality is only a precondition. The government needs to examine the underlying causes of the brain drain and to formulate a comprehensive policy for attracting and retaining talent. In addition to monetary incentives, promoting a better living and working environment, and providing greater tax certainty, should also be on the agenda.
Given the labour shortages in Hong Kong, unemployment is expected to remain low, but there is also a degree of mismatch between the skills required for the future and those available in the labour force, so providing opportunities for upskilling and retraining will remain important.
The Institute makes four sets of recommendations to help reinforce Hong Kong’s international status and competitiveness: 1) enhance Hong Kong’s competitiveness and attract overseas investment, which mainly includes measures to attract and retain talent, and promote innovation and technology, research and development, and intellectual property development in Hong Kong; 2) help the workforce to upgrade their skill sets; 3) continue to promote digital transformation; and 4) provide greater tax certainty and review Hong Kong’s tax system.
Making Hong Kong a more livable city and community measures
Hong Kong’s healthcare system has a good reputation and is known for its quality, efficiency and coverage of the community. However, the very long waiting times for booking for stable new cases, as well as the overwhelmed capacity of public hospitals during COVID-19, have revealed the acute manpower shortage in Hong Kong’s public hospitals. This, coupled with the loss of experienced personnel and the ageing population, means that the public healthcare sector is expected to be overstretched and overcrowded in the foreseeable future. To reduce the burden on the system, we recommend that the government encourage people to adopt a more active and healthy lifestyle, while promoting a more efficient utilization of both public and private healthcare services through appropriate tax incentives.
As long as the local COVID situation remains under control, with the government’s support, domestic economic activities are expected to revive further. To help overcome the challenges until the recovery is fully under way, the government should continue to provide some targeted support and relief measures to businesses and individuals. With very substantial electricity price increases announced in November 2022, resulting from a number of factors, including the ongoing conflict in Ukraine, one area of support that may need to be offered is electricity subsidies, at least for low income consumers; but along with these, it will be important to promote energy conservation.
The Institute makes four broad proposals, encompassing a number of specific recommendations, in relation to making Hong Kong a more livable city and community measures: 1) encourage people to adopt a more active and healthy lifestyle and reduce the burden on the public healthcare system, with additional tax incentives; 2) offer support for organizing international arts, culture and sports events, as well as fostering local arts and culture development, and encourage good use of the new harbourfront promenades for leisure and tourism; 3) community relief measures, including providing electricity subsidies; and 4) review and rationalize the personal allowances and encourage saving for retirement.
Measures to achieve carbon neutrality and sustainability goals
Hong Kong’s Chief Executive is committed to achieving carbon neutrality by 2050. The Environment Bureau (renamed as the Environment and Ecology Bureau) released Hong Kong’s Climate Action Plan 2050, on 8 October 2021, setting out the vision of “Zero-carbon Emissions • Liveable City • Sustainable Development,” and outlining the strategies and targets for combating climate change and achieving carbon neutrality, together with certain quantitative targets. We support Hong Kong’s efforts to achieve carbon neutrality by 2050 and we are committed to helping the business community here to adopt international sustainability reporting standards, as and when they are promulgated. The government and regulators, as well as relevant industry organizations, should continue to promote sustainability to the public and businesses, and drive and enforce the related regulations to enhance corporate sustainability performance and disclosure.
The Institute is expected to become the local standard setter for international sustainability reporting standards in Hong Kong, building on its experience and well-developed infrastructure as the standard setter for financial reporting, auditing and ethical standards. The Institute will then be committed to ensuring that members are up to speed with corporate sustainability disclosure and reporting standards, both from the preparers’ and the assurers’ perspectives. As regards assurance, in December 2020, the Institute issued guidance to members on the assurance of ESG reporting, which has since been further updated.
The Institute puts forward two groups of proposals in this area, including: 1) general policies to promote sustainability in Hong Kong; and 2) specific measures in relation to green buildings, electric vehicles and green finance. The latter include measures on incentivizing developers to construct more energy-efficient buildings and to further encourage the trend towards electric vehicles.
The Institute believes the recommendations proposed in its submission to the government can help Hong Kong to re-establish itself in the post-pandemic era as one of the best places in the world to live, work and visit. Financial Secretary Paul Chan will deliver the 2023-24 Hong Kong Budget Speech on 22 February, outlining the government’s short-, medium- and long-term plans for Hong Kong. It is expected that he will announce measures to help reinforce Hong Kong’s international status and facilitate post-COVID recovery.
This article is contributed by the Advocacy and Practice Development Department of the Institute.