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As every year in February, the Hong Kong Financial Secretary Paul Chan gave his annual speech on the financial situation of Hong Kong on 24 February 2021 with an outlook on the finances for the next fiscal year 2021/2022, which begins on 1 April 2021.
1. HKD 256 Billion Deficit
After Hong Kong has consistently generated a surplus of several billion euros per year for the past 15 years, a deficit of HKD 139 billion (approx. €15 billion) was recorded for the first time in 2019/2020.
Hong Kong's economy contracted 6.1 percent in 2020 - the worst performance since the Asian financial crisis of 1998.
Also due to the Coronavirus crisis and the various support measures, this deficit widened further in 2020/2021 to approx. HKD 256 billion (approx. €27 billion) and it is projected that a surplus will only be generated again from 2026 onwards.
As a result, Hong Kong's financial reserves will shrink from around HKD 900 billion (approx. €95 billion) to around HKD 780 billion (approx. € 83 billion).
2. Vehicle Taxes, Stamp Duty Increased
To strengthen Hong Kong's revenue side, business associations have been calling for a comprehensive reform of the tax system for many years, as Hong Kong's tax revenue is mainly based on corporate tax, personal income tax and stamp duty. Here, without increasing the overall tax burden, there is a demand to broaden the tax base through additional taxes, such as value added tax.
However, this did not happen this year either and the government limited itself to increasing vehicle registration costs and annual vehicle license fees with the hope to lower traffic pollution.
Furthermore, the stamp duty on stock transactions will be increased from 0.1% to 0.13% of the value of the transaction, a quite controversial measure that was met with some fierce criticism from business representatives, since Hong Kong is the only stock market worldwide that charges buyers and sellers at the same time, with many others financial centres not levying any stamp duty at all.
3. HKD 5,000 Vouchers for Hongkongers
To stimulate and accelerate the economy and demand, the Financial Secretary announced an extensive program to give local businesses and Hong Kong residents some of the financial reserves.
Particularly interesting could be the announcement that every adult permanent resident of Hong Kong will receive several vouchers for a total value of HKD 5,000 (approx. €530) during this year. Unlike last year – when HKD 10,000 (approx. €1,060) were handed out in cash - this amount is made available in electronic form and can only be redeemed at a yet unknown selection of local shops.
Other fiscal stimulus measures for the economy include:
The waiver of all income tax bills up to an amount of HKD 10,000 (approx. €1,060).
The waiver of all corporate tax bills up to an amount of HKD 10,000 (approx. €1,060).
Property tax on privately used real estate is waived in the first two quarters up to an amount of HKD 1,500 HKD (approx. €159) per quarter. For the last two quarters of 2021 this will be reduced to HKD 1,000 each (approx. €106).
For commercial real estate, the property tax is reduced to HKD 5,000 (approx. €530) or HKD 2,000 (approx. €212) for the last two quarters.
Annual company registration fees are waived.
Companies are offered low-interest loans secured by the government.
An electricity subsidy of up to HKD 1,000 (approx. €106) is granted.
Residents of social housing are reimbursed one month's rent.
Recipients of social assistance and similar support receive an additional half a month's payment.
4. Support for Tech and Tourism Sector
In addition to these individual provisions, a plethora of other measures were announced in order to strengthen the sectors that suffered severely from the Corona crisis, i.e., above all tourism, hotels, bars and restaurants. Furthermore, Hong Kong is to be promoted as an interesting location for foreign high-tech companies and the tourism sector through increased marketing to make Hong Kong more interesting for tourists again.
5. 2025/2026 Target for Financial Surplus
It was already expressed in the address of the Financial Secretary for the last financial year that a deficit was also to be expected for 2021/2022. However, due to the ongoing Corona crisis, this was now much higher than originally expected. However, much of the additional deficit was used to financially support the Hong Kong economy and residents during the crisis and is therefore a direct reinvestment.
It is positive that economic growth of 3.3% is expected for 2021/2022 and a financial surplus again from 2025/2026. However, Hong Kong is still at the centre of the trade disputes between China and the West and the social challenges in Hong Kong have not yet been overcome. It therefore remains to be seen whether the predicted figures will come true, or whether Hong Kong will have to put up with having a financial deficit for longer, which would have a direct impact on the living conditions of residents.
Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.