Hong Kong's economy experienced a modest growth of 2.5 percent last year, aligning with the lower end of its forecast range. This growth coincides with a notable shift in the global financial landscape, where Chinese firms are increasingly turning to Hong Kong for company listings, favoring it over the United States. However, despite this positive development, the city's government revenue has fallen short of expectations. This shortfall is partly attributed to the changing preferences of Chinese companies. As Hong Kong looks toward the future, it faces a projected deficit of nearly HK$100 billion (US$13 billion) for the 2024-25 financial year, marking its third consecutive year of fiscal deficit. Economists suggest that targeted policies could potentially save the city HK$14 billion this fiscal year. Meanwhile, the city's financial chief, Paul Chan, is set to deliver the annual budget speech on Wednesday, February 26.
Hong Kong's potential to attract more investments lies in its ability to harness the flow of money back into the city. By implementing attractive policies, the government could court family-office investments and initial public offerings (IPOs). Ms. Keung commented,
"This sort of flow should be captured by the Hong Kong government with the right set of policy."
The office vacancy rate in Hong Kong currently stands at 17 percent, with approximately 15 million square feet of space unused. This is a stark contrast to about a decade ago when the vacancy rate was below 4 percent. According to Mr. Marcos Chan,
"The working practice has changed. How people use commercial space has changed."
These structural shifts, combined with weak global demand, present ongoing challenges for Hong Kong's economy.
Retail and food and beverage businesses in Hong Kong are still grappling with a sluggish recovery post-COVID-19. The London Restaurant has reported a drop in business by up to 30 percent compared with pre-pandemic levels. As small and medium-sized enterprises (SMEs) strive to rebound, they seek government support in the budget for expansion into new markets across Asia and the Middle East. William So expressed his hopes:
"I hope the government won't forget about us SMEs, while also taking care of the bigger businesses."
"What SMEs need are actually some simpler procedures, making it easier for them to do business and to encourage them by not imposing too many strict rules regarding issues like environment and food."
The introduction of digital service taxes could offer an alternative revenue stream for Hong Kong. Mr. Wayne Lau noted,
"Based on estimates, for 2024, there could be US$3.5 billion digital service revenue generated and assuming we apply a 5 percent digital service tax rate, it could perhaps generate HK$1.4 billion."
In addition to digital service taxes, adjustments in profit and salaries tax rates could significantly enhance revenue. Ms. Keung emphasized,
"Adjustment in profit and salaries tax rates may be more impactful for revenue enhancement than others (as these rates have been) kept at persistently low levels."
Previously, the government increased taxes on individuals earning more than HK$5 million annually as part of its budget measures.
Leave a Reply