Hong Kong finance chief unveils budget aimed at replenishing city’s coffers

Salaries tax for people making at the least HK$5 million will go up, together with the introduction of a progressive ranking system for home properties, Chan revealed, as he steered away from elevating expenses of public companies and fundamental utilities which might have affected a wider cross-section of the general public.

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Hongkongers react after 2024-25 price range scraps measures to chill property market

Hongkongers react after 2024-25 price range scraps measures to chill property market

In his price range themed “Advance with Confidence, Seize Alternatives, Try for Excessive-quality Improvement”, the finance chief put the main focus squarely on financial restoration and bolstering confidence as he unveiled plans to deepen innovation and expertise, search new markets, appeal to tourism and funding, whereas taking full benefit of alternatives supplied by nearer integration with mainland China.

“The goal of this yr’s price range is to stabilise confidence within the quick time period in order to withstand the affect led to by the weak market ensuing from exterior components,” mentioned Chan, citing the scrapping of the property cooling measures.

“Within the midterm, we have to take care of some challenges …. our work is to seize enterprises, seize expertise, and seize capital. That can be our fundamental job. On this respect, we’re making progress.”

On the opposite aspect of the ledger, he revealed the town’s ballooning deficit would hit HK$101.6 billion this monetary yr. That would go away fiscal reserves at HK$733.2 billion, the bottom in a decade.

Hong Kong price range sparks buzz over property purchases and simply who pays extra taxes

He mentioned he anticipated the town’s books to stay within the pink with a lack of HK$48.1 billion in 2024-25 earlier than handing over a surplus in subsequent years, by a mixture of measures of issuing bonds in addition to the focused elevating of a number of authorities expenses.

Chan predicted that Hong Kong’s financial system, which grew 3.2 per cent final yr, would increase additional at a modest 2.5 to three.5 per cent, earlier than averaging at 3.2 per cent from 2025 to 2028.

“Hong Kong’s financial progress final yr was slower than anticipated owing to world rate of interest hikes, financial slowdown and continued geopolitical tensions,” he mentioned.

“However a discount in complete authorities expenditure after the pandemic, income from land premium and stamp responsibility has decreased beneath a softened asset market, leading to a bigger deficit than anticipated.”

Income from land premium was solely HK$19.4 billion within the present monetary yr, considerably decrease than the unique estimate by HK$65.6 billion. Income from stamp responsibility of HK$50 billion was additionally decrease than the unique estimate of HK$85 billion.

Addressing mounting calls from the property and enterprise sector to ditch the decade-old cooling measures out there as lived-in residence costs fell for the ninth straight month to a stage final seen in 2016, Chan made a bolder-than-expected transfer to scrap all of them with instant impact.

These embody the Purchaser’s Stamp Responsibility (BSD) that targets non-permanent residents and a New Residential Stamp Responsibility (NRSD) for second-time purchasers. Owners may even now not must pay a Particular Stamp Responsibility (SSD) in the event that they promote their residence inside two years.

“We think about that the related measures are now not crucial amid the present financial and market situations,” Chan mentioned.

Finish of Hong Kong property curbs won’t gas hypothesis, says authorities

He mentioned the federal government anticipated the quantity of transactions to extend with out revealing a goal, and emphasised the transfer was to “stabilise individuals’s confidence” within the quick time period and to forestall the detrimental market sentiments from dragging confidence throughout the board.

One instant blow to the federal government would be the loss in stamp responsibility income with the axing of the curbs – whose common annual determine stood at HK$9.4 billion between 2020 and 2023.

This may additional dent the town’s shrinking reserves, that are anticipated to dive additional to HK$685.1 billion subsequent yr.

Signalling a halt to beneficiant reduction measures given the smaller coffers, Chan slashed the quantity to be spent on one-off sweeteners from final yr’s HK$59.3 billion to HK$11.5 billion.

A piece of final yr’s reduction measures was to cowl 100 per cent salaries and earnings tax discount capped at HK$6,000. This sum has been halved to HK$3,000 for this yr.

Property homeowners can now solely apply for one quarter of price concessions, as much as HK$1,000 for every web site, as a substitute of two quarters final yr. The consumption vouchers, which had been dished out for 3 years in a row and price the general public coffers HK$33 billion final yr, have additionally been scrapped.

Chan mentioned he “felt sorry” that the dimensions of tax reductions was smaller than earlier than, including: “The federal government has skilled a number of years of price range deficit. Our skill to supply extra help measures is restricted.”

Chan put ahead what he described as a “fiscal consolidation programme” by “exercising stronger management” over the tempo of expenditure progress by reprioritising or enhancing enterprise processes, reminiscent of freezing public service headcounts and reducing division bills by 1 per cent for the following two years.

In a transfer that signalled a change in infrastructure priorities, the federal government has additionally determined to postpone the HK$580 billion reclamation venture of the Kau Yi Chau synthetic islands, an formidable venture by former metropolis chief Carrie Lam Cheng Yuet-ngor beforehand known as Lantau Tomorrow. It was initially scheduled to begin subsequent yr.

One of the eye-catching initiatives by Chan in attempting to find new sources of earnings is the uncommon tax hike which can have an effect on about 12,000 high earners within the metropolis. It’s set to reel in about HK$910 million further income for the federal government every year.

Beneath the measure, their first HK$5 million of web earnings continues to be topic to the usual 15 per cent price, whereas the portion exceeding that quantity can be taxed at an ordinary 16 per cent price.

These affected embody Canning Fok Kin-ning, the right-hand man of tycoon Li Ka-shing, who earned HK$204 million in 2022, Chief Government John Lee Ka-chiu, who makes HK$5.4 million a yr, and Financial Authority chief government Eddie Yue Wai-man, who earned HK$10 million in 2022.

Chan careworn the affect of the transfer on the town’s competitiveness could be “minimal”.

“Even with this improve, our salaries tax regime stays very aggressive, in contrast with different jurisdictions,” he mentioned. “In an effort to get further earnings by reference to the power to pay, we predict it’s the proper transfer.”

He proposed legislative amendments to introduce a progressive charges regime which can have an effect on flats with a rateable worth of greater than HK$550,000, amounting to about 1.9 per cent of related properties.

Tobacco tax has additionally been elevated to 80 HK cents per stick to instant impact too, bringing the price of every pack of 20 to about HK$94.

However he dismissed ideas for a civil service pay lower regardless of revealing the concept was mentioned. “Whether or not it’s senior authorities officers, political appointees, or normal civil service colleagues, how our pay is adjusted would have an effect on the personal sector.”

The federal government additionally revived the lodge lodging tax paid by friends, which had been waived since 2008, from January 2025 onwards, arguing the three per cent cost was “very reasonably priced” and would generate an annual earnings of greater than HK$1.1 billion.

Whereas Chan had earlier managed public expectations by saying he would assessment expenses for public companies to assist steadiness its books, he finally avoided elevating water or affected person payments and solely elevated the enterprise registration charges by HK$200 to HK$2,200 each year.

He, nevertheless, vowed to assessment the HK$2 transport subsidy scheme for aged and disabled residents, in addition to the general public transport fare subsidy scheme, whose expenditure had grown considerably over the previous years.

The administration may even for the primary time search approval from the legislature to dip into the funding return of the Future Fund arrange for wet days, which made up a lot of the metropolis’s reserves, whereas issuing HK$120 billion value of bonds this yr as a brand new income supply and to finance infrastructure growth.

In boosting the sluggish financial system, Chan earmarked HK$1.09 billion to strengthen tourism growth and organise occasions, together with a brand new pyrotechnic and drone present each month, and allotted further findings for cutting-edge industries reminiscent of life and well being expertise, synthetic intelligence, knowledge sciences and superior manufacturing.

Amid the continued China-US tech struggle, the administration may even set up the Hong Kong Microelectronics Analysis and Improvement Institute this yr which can spearhead analysis collaboration on the third-generation semiconductors amongst universities, R&D centres and the trade.

Wrapping up his eighth price range, Chan known as for unity as he mentioned, primarily based on the previous: “It’s apparent that the trail now we have trodden, nevertheless, winding or bumpy, has all the time led to a greater tomorrow.”

Commerce sector lawmaker Jeffrey Lam Kin-fung, additionally a member of high advisory physique the Government Council, mentioned that after the housing market was stabilised with the repeal of the property curbs, it will draw buyers and enhance the market and the general financial system in flip.

The Democratic Alliance for the Betterment and Progress of Hong Kong welcomed Chan’s transfer to introduce a two-tiered customary charges regime and a extra focused tax of the town’s high earners whereas not growing any livelihood expenses.

The Society for Neighborhood Organisation mentioned whereas it was good the federal government launched increased taxes for the wealthy, it was disenchanted by the dearth of focused measures in assuaging poverty and curbing social welfare spending was ill-advised. “It’s going to have a detrimental impact on our service operators.”

Extra reporting by Harvey Kong