HK$120b relief package to put city back on track
The Hong Kong Special Administrative Region government on Wednesday rolled out a further HK$120 billion ($15.47 billion) relief stimulus package to prop up the pandemic-ravaged economy and alleviate people’s financial burdens as it faces a budget deficit for three successive years.
“Although I forecast an improvement in revenue for the next financial year, l expect that the fiscal deficit will reach HK$101.6 billion, accounting for 3.6 percent of GDP, due to the countercyclical fiscal measures and the continued increase in recurrent expenditure,” Financial Secretary Paul Chan Mo-po said in delivering the 202122 Budget — the fourth of the incumbent administration.
Countercyclical measures could boost economic growth by 2 percent, according to government sources.
The measures, Chan said, were aimed at creating an environment that benefits Hong Kong people, workers and businesses amid a 17-year-high unemployment rate of 7 percent.
The financial chief offered a list of “sweeteners”, including HK$5,000 worth of electronic consumption vouchers for each eligible Hong Kong permanent resident and new arrival aged 18 or above; cuts in salaries tax, capped at HK$10,000; a 100 percent reduction in profits tax, capped at HK$10,000, that will benefit nearly 130,000 enterprises; an extra halfmonth pay in welfare allowances; as well as low interest rate loans of up to HK$80,000 for the jobless.
He also announced a revised record budget deficit forecast of HK$257.6 billion for the 2020-21 financial year, compared to the original forecast of HK$139.1 billion. The city’s fiscal reserves are expected to stand at HK$902.7 billion by March 31.
As the coronavirus roiled the local economy, the government dished out almost HK$318 billion in relief last year — including four rounds of the Anti-epidemic Fund and HK$120 billion in relief aid under the 2020-21 Budget. Hong Kong’s fiscal reserves have dwindled sharply in two years — from the equivalent of 23 months of government expenditure to 13 months.
The SAR recorded a budget deficit of HK$37.8 billion, about 1.3 percent of GDP, for the 2019-20 financial year, ending a 15-year streak of surplus. The last time the city experienced a budget deficit was from 2000 to 2003 on the heels of the Asian financial crises and before the SARS outbreak.
“The budget has also put forward effective measures to ensure prudence in public finance which, in turn, will enhance confidence in Hong Kong’s fiscal strength and is conducive to maintaining our monetary stability. I support the pragmatic approach in adopting a deficit budget amid the prevailing economic downturn,” Chief Executive Carrie Lam Cheng Yuet-ngor said in a statement.
The Association of Chartered Certified Accountants said: “While weighing up public spending based on our revenue, the public expenditure in areas related to people’s livelihood is not reduced. It’s important to infuse energy in sustainable economic development and maintain confidence in the market to enable businesses to rebound and ensure stable employment when the economy recovers.”
The HK$12 billion ($1.55 billion) budget for Hong Kong’s innovation and technology development will expedite the city’s digital transformation after the COVID-19 pandemic, and enhance its role as a tech hub, experts say.
Financial Secretary Paul Chan Mo-po on Wednesday revealed that level of expenditure on I&T in the 2021-22 budget, with favorable policies covering the digital economy, talent nurturing and introduction, infrastructure, research and development, as well as startups.
In the past three years, the government has allocated over HK$100 billion to support I&T development. “Despite the huge challenges imposed by the pandemic as well as the internal and external environments, I am convinced that the promotion of I&T is the right direction for the long-term development of Hong Kong,” Chan said.
Under a HK$200 million budget, the government will roll out a “Knowing More About IT” program in primary schools, providing up to HK$400,000 to each school in the coming three school years, to prepare the younger generation for a digital economy.
The government will regularize the program to subsidize local university students majoring in science and technology for short-term I&Trelated internships.
Besides, a Global STEM Professorship Scheme will be launched in the first half of this year, to support universities in attracting worldrenowned I&T scholars and their teams to participate in science, technology, engineering and math teaching and research. The program will cost about HK$2 billion.
“Talents are vital to the development of innovation and technology,” said Agnes Wong, a tax partner with PwC Hong Kong. She believes the fund in education and internships on I&T will help achieve the city’s target to become an international I&T hub. She expects efficient implementation of an I&T related budget to turn the investment into economic growth.
On research and development, the financial chief announced a HK$4.75 billion injection per year to the Innovation and Technology Fund for two years to sustain its 17 funding programs and the work of over 50 R&D laboratories in the next three years.
William Wong Kam-fai, associate dean of the Faculty of Engineering at the Chinese University of Hong Kong, said the fund is a more pressing need for local R&D, as the economy has to expedite digital transformation post-pandemic.
To support startups, the government-owned Hong Kong Science and Technology Parks Corporation and Cyberport will inject HK$350 million and HK$200 million into their existing Corporate Venture Fund and Cyberport Macro Fund respectively, and extend the scope to cover Series B and later-stage investments.
Wong noted that private investment in startups has been shrinking under the pandemic. Thus, the government fund, especially in later stage financing, is vital to local tech startups.
On the digital economy, the government will allocate HK$375 million to the Hong Kong Trade Development Council in the coming three years to develop virtual platforms to enhance its capability to organize online activities and to proceed with digitalization.
Welcoming the measure, HKTDC Chairman Peter Lam Kin-ngok said the organization will build a robust virtual platform supported by the latest technology to offer a seamless online-to-offline experience for buyers and sellers, helping local and global companies capture opportunities with greater ease and precision.
“Even when the pandemic subsides, a physical-cum-virtual hybrid model will likely be the new norm. It is therefore of utmost importance to help enterprises accelerate their digital transformation,” Lam said in a news release.