Prologue Journal

Understanding current events through the lenses of the past and future.

‘Too early’ to consider slashing civil servants’ pay to cut costs, finance chief says as HK$100 billion deficit looms

Hong Kong Free Press

'Too early' to consider pay cuts, freezes to cut costs, finance chief says as HK$100 billion deficit looms

It is “too early” to consider pay cuts and salary freezes for civil servants as a cost-cutting measure, Hong Kong’s finance minister has said after an economist made the suggestion as the government announced a potential HK$100 billion deficit for the current financial year.

Finance Secretary Paul Chan meets the press after delivering the budget for 2024 on February 28, 2024. — Finance Secretary Paul Chan. File photo: Kyle Lam/HKFP.

Speaking on Commercial Radio on Sunday, Secretary for Finance Paul Chan attributed the deficit to high interest rates, lower profits taxes than expected, and a hobbled property market that led to a drop in revenue from stamp duty and land sales.

Chan announced last week that Hong Kong’s budget deficit was expected to double from initial estimates to HK$100 billion this year, marking the third year the city sees a fiscal shortfall reaching that figure.

The deficit forecast prompted a suggestion from economist Simon Lee, honorary fellow at the Asia-Pacific Institute of Business at the Chinese University of Hong Kong, that the government cut salaries for civil servants by eight to 10 per cent in the next fiscal year.

Lee also said the deficit was partly structural, as the government had long relied on land sales revenue to pad its coffers. Cutting salaries was the most practical option to lower costs, Lee said.

Cutting costs

The government was formulating a plan to consolidate its finances with a focus on cutting costs, Chan said on Sunday. Asked whether the government would consider cutting or freezing salaries, Chan said it was “too early to say.”

Civil servants. File photo: Kyle Lam/HKFP.

Official figures show that land-related transactions from April to October – including land sales and lease modifications – brought about HK$3.7 billion in revenue. Chan in February predicted that land sales would bring in HK$33 billion, and stamp duties HK$71 billion.

Chan on Sunday also said government departments will cut their expenses by 1 per cent in the coming financial year, a plan he announced last December.

On the government’s earlier announcement that Hong Kong’s GDP growth this year was estimated at 2.5 per cent, at the lower end of the previously estimated range of 2.5 to 3.5 per cent, Chan pointed to high interest rates and industries having to “adapt” to the public’s and tourists’ changing consumption patterns.

Chan also brushed off concerns that a retail infrastructure bond offering worth HK$20 billion was undersubscribed, with about 128,000 individual investors signing up for HK17.85 billion worth of bonds.

Under another bond offering, demand was keen among institutional investors, who subscribed three to four times more than the supply, Chan said.

Chan also said the city’s Office for Attracting Strategic Enterprises had brought 100 enterprises into the city, with an estimated investment reaching HK$40 billion to HK$50 billion, creating some 17,000 jobs, while Invest Hong Kong has attracted 500 companies with an investment of about HK$50 billion.

The financial secretary said last week that it will take four years to bring the budget out of the red.

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