Two months after the dust of the Umbrella Revolution settled, the Hong Kong government tabled its annual budget with measures to tackle the negative impact and sentiment brought by the event. For the coming year, the city’s administration projects its nominal gross domestic product (GDP) to grow at 2.5% to 4.5% (real GDP at of 1% to 3%), with 3% to 3.5% inflation.
HK Financial Secretary John Tsang expects government revenue to reach US$61.5bn on the back of US$56.8bn in expenditure. An estimated surplus of US$4.7bn would mark the twelfth consecutive balanced budget for the cash-rich city and bring its fiscal reserves to a staggering US$110.3bn by the end of the next financial year (sufficient to accommodate 23 months of government expenditure).
During the budget presentation on 25 February, Mr. Tsang announced a series of relief measures worth US$4.4bn to deal with the aftermath of the Umbrella Revolution, the protests spearheaded by the Occupy Central Movement and the biggest civil movement in the city for decades. This includes license fees waivers of six to 12 months for the tourism, hotel, food and beverage, and transport industries affected by the three-month-long protest.
On top of that, the HK government will spend US$13.7m in global promotional and publicity works to restore the city’s reputation as an international financial centre and prime tourist destination. An additional US$193.2m will be pumped into the SME Export Marketing and Development Funds, with maximum funding for every individual project to be increased by 250% to US$640,000.
Many observers see the huge public support displayed during the Movement as a result of uneven wealth distribution and lack of affordable housing that is happening in the city. The government is addressing these issues in the budget. The salaries tax will be reduced to 75% with a ceiling of US$3,500 for financial year 2014-15 and some 1.8 million taxpayers are expected to benefit from it. Besides the tax cuts, allowances for childcare will be lifted to US$12,880 (from US$9,020) to lessen household burden.
Additionally, a proposed two extra months of social welfare payments and a one-month waiver in public housing rental would help the poorest and most underprivileged in the city. To ease housing demand, the government has outlined a land sale programme in 29 residential locations that would allow private developers to build 16,000 new homes.
Hong Kong is facing a rapidly-aging population thanks to one of the highest life expectancies in the world (81 years for men and 87 years for women). In the budget, US$6.3bn (increased by 50% in the last five years) will be allocated to the Hospital Authority to cover the operating expenditure of public hospital. Also, existing hospitals will be expanded or redeveloped to add another 2,800 hospital beds to the city’s healthcare system with a funding of US$10.4bn.
We can also find measures to enhance Hong Kong’s competitiveness as a global financial hub in the budget. After the successful launch of the Shanghai-Hong Kong Stock Connect last November, the city is looking at a linkage with China’s second largest stock exchange, the Shenzhen Stock Exchange. The linkage of the three exchanges would form the biggest stock market in the world outside of the US.
Besides that, Mr. Tsang recommended amendments to the Inland Revenue Ordinance to provide tax concessions for treasury activities and make the city a preferred jurisdiction for regional corporate treasury centres. The administration is committed to work with Mainland authorities to loosen the quota for the RMB Qualified Foreign Institutional Investors (RQFII) Scheme in a bid to strengthen the city’s position as the global offshore renminbi centre.
We can see from the budget that the Hong Kong government has allocated a substantial amount of resources in increasing social equality in order to create a more inclusive society. In return, this will provide a stable business environment for sustainable economic development. Social stability is utterly important for Hong Kong as a global city and international business centre, and there is no one clearer on that than the Financial Secretary.