Hong Kong to cut costs, finance minister Paul Chan says, as possibility of continuing deficit ‘cannot be ruled out’
Hong Kong Free Press
The Hong Kong government will have to cut costs in the coming years, finance minister Paul Chan has said, adding that he was unable to rule out a deficit continuing into the next fiscal year under slow economic growth.
The government “will inevitably need to consolidate and exercise more prudent control over expenditure,” Chan wrote in Chinese in his blog on Sunday.
Chan said government departments would cut their expenses by 1 per cent in the 2024-25 financial year, and again the following year, amid an expected budget shortfall of just over HK$100 billion – double the amount forecast at the beginning of the year.
The funds saved will be “redeployed internally to optimize and launch new public services,” he added.
“Looking ahead to next year, the geopolitical situation will remain complex and volatile, which will curb Hong Kong’s economic growth. Revenues related to the asset market will be difficult to recover quickly, and the possibility of a deficit continuing into next year cannot be ruled out.”
Chan attributed the predicted shortfall to an unfavourable external environment, involving high interest rates, geopolitics, and supply chain issues. He also pointed to a weak asset market which saw a drop in revenue from stamp duty, land sales, and stock transactions compared with estimates at the beginning of the year.
Chan added that the government would maintain “zero-growth” in the civil service workforce.
The city’s fiscal reserves stood at HK$817.3 billion in March 2023, down from HK$1.1 trillion in 2018. Except for a surplus of HK$29.4 billion in 2021-22, the city has been in the red every year since 2019, with a shortfall of more than HK$233 billion in 2020-21 and HK$140 billion in 2022-23.
See also: Why Hong Kong is constitutionally obliged to balance the books
Among the main initiatives to boost revenue were plans to deepen economic ties with the Middle East and Association of Southeast Asian Nations (ASEAN) countries, while also attracting innovation and technology enterprises to the city.
Chan had previously said corporate taxes from those enterprises would help ease the government’s financial woes.
The finance chief’s remarks came as the government commenced a public consultation for the upcoming financial year’s Budget, scheduled for February 28 next year. “We need to make forward planning for Hong Kong’s long-term and sustainable development, to grow the economic pie together and make it better, ” he said in a separate statement.
Cautious optimism
Meanwhile, Eddie Yue, chief executive of the Hong Kong Monetary Authority, the city’s de facto central bank, said he was cautiously optimistic about the local economy looking ahead and expected the US Federal Reserve to cut interest rates after mid-2024.
Speaking on a Commercial Radio programme, he also said that while Hong Kong’s capital markets were affected by both mainland China’s economy and global interest rates, the mainland economy seemed to have “bottomed out,” with slight rebounds in industry, retail, and consumer sentiment.
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