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Earlier today on 28 February 2024, the Financial Secretary of the HKSAR, Mr Paul Chan, released the budget for 2024/2025. The theme of this year’s budget is “Advance with Confidence. Seize Opportunities. Strive for High-quality Development”. These are the highlights.
Author: Stefan Schmierer, Managing Partner
Economic Performance
In 2023, Hong Kong’s economy grew 3.2% compared to 2022; in that year it declined by 3.5%. Exports dwindled by 10.3% in 2023, with inflation remaining at moderate levels: the underlying rate remains unchanged at 1.7%. In real terms, incomes of the general public grew with a private consumption expenditure increase of 7.3%.
The labour market saw an improvement with the seasonally adjusted unemployment rate declining from 3.5% in Q4 of 2022 to the latest 2.9%.
The residential property market saw much caution amid rising interest rates and an uncertain external environment: flat prices fell 7% and number of transactions declined by 5%.
The expectations for 2024 are positive with an IMF global economic growth forecast remaining stable at 3.1%. The HKSAR economy is expected to grow between 2.5% - 3.5% in real terms for the year as a whole. The underlying inflation is expected to remain stable at 1.7% with a headline inflation rate of 2.4%.
Looking further ahead, Mr Chan forecasts that the Hong Kong economy will grow on average by 3.2% from 2025 to 2028 with a risen underlying inflation rate forecasted at 2.5% average per year.
Revised 2023/2024 Revenue and Expenditure
The 2023/2024 revised estimate on government revenue is $554.6 billion, lower than the original estimate by 13.7 % or $87.8 billion. Revenue from land premium is $19.4 billion, substantially lower than the original estimate by $65.6 billion, far lower also than the previous year.
Revenue from stamp duty of $50 billion is lower than the original estimate by $35 billion. Revenue from profits tax and salaries tax is $171.2 billion and $79.2 billion respectively, comparable to the original estimates.
The revised estimate of total government expenditure for 2023/2024 is $727.9 billion, decreased by 10.2% compared to the previous year, and is 4.3% or $33.1 billion lower than the original estimate. Considering the above numbers, Hong Kong is set to have a consolidated deficit of $101.6 billion for 2023/2024 in its books. The SAR’s fiscal reserves are expected to be at a still healthy $733.2 billion by 31 March 2024.
Expected 2024/2025 Revenue and Expenditure
Thanks to its international hub status catering to both the Mainland and the Western world, Hong Kong’s economy is highly influenced by the external environment, which, for the foreseeable future, looks to maintain its complicated character.
Revenues related to the asset market will still require some time to fully recover. Nonetheless, Mr Chan states that the Government will continue to provide resources for strengthening momentum on economic growth and enhancing public services.
Total government expenditure for 2024/2025 will increase by about 6.7% to $776.9 billion, with its ratio to nominal GDP projected to increase slightly to 24.6%. Recurrent expenditure will increase as well, the expectation is by 7% to $580.2 billion, with the highest sums paid out to livelihood‑related policy areas including health, social welfare and education. These costs are estimated to be $343.7 billion, representing 59.3% of recurrent expenditure.
However, with the pandemic behind us, non‑recurrent expenditure is set to be lowered drastically by 47.7% to $33.6 billion.
Mr Chan estimated to receive as revenue $633 billion in 2024/2025, while earnings and profits tax are estimated to be $279.6 billion, increasing by 6.8% over the revised estimate for 2023/2024. Revenue from land premium is estimated to reach $33 billion, which is a whopping 70.1% increase compared to the revised estimate for 2023/2024. Revenue from stamp duty is estimated to be $71 billion, increasing by 42% over the revised estimate for 2023/2024. More on how this substantial increase would be achieved, you will read later in this article.
Putting the above numbers next to each other and taking into account the plan to issue bonds at a value of $120 billion in 2024/2025, it is expected that there will be a deficit of $48.1 billion for the year, with Hong Kong’s fiscal reserves decreasing further to a still healthy $685.1 billion.
Looking further ahead
In his budget, Mr Chan looks further ahead, as mentioned earlier. He is slating several MRF (Medium Range Forecast) projects, which combined with several assumptions such as the 3.2% economic growth rate, should see the deficit in the Operating Account and Capital Account gradually reduce year by year, in the next five years.
The Operating Account is estimated to record a surplus from 2026/2027 onwards, while the Capital Account will record surplus in 2028/2029. After taking account of proceeds from the issuance of bonds, the Consolidated Account will only record a deficit in 2024/2025 and will turn to a surplus in subsequent years.
Naturally, a big assumption is that nothing drastically changes that would require any tax rebates or relief measures implemented by the Government over the coming four years. Fiscal reserves should then end up at an estimated $832.2 billion by the end of March 2029, representing 21.2 per cent of GDP, or equivalent to approximately 12 months of government expenditure.
Revenue increases related to property market expected
As highlighted above, substantial increases in revenue are expected from land premium and stamp duties. This increase is mainly expected due to the immediate scrapping of several cooling measures, as they are deemed no longer necessary amid the current and expected economic and market conditions.
Special Stamp Duty, Buyers’ Stamp Duty and New Residential Stamp Duty for residential properties are scrapped with immediate effect and countercyclical macroprudential measures for property mortgage loans are relaxed; other supervisory policies for property lending are to be adjusted.
Stock market to remain open during adverse weather conditions
As reported in one of our previous articles, a peculiar element of business in Hong Kong is its system of weather warnings, and in the case of severe weather fully suspending business altogether, inclusive of the stock market. Mr Chan says that by mid-2024 trading operations will be maintained under severe weather, thereby increasing the effective days per year of trading in Hong Kong.
Other noteworthy topics in the budget
Strategic enterprises: more than 40 strategic enterprises have set up or expanded their businesses in Hong Kong, or will do so. Total investment of over $40 billion, creating 13 000 jobs
Submit legislative proposal to implement re-domiciliation mechanisms in first half 2024
Prepare to list an Exchange Traded Fund (ETF) in the Middle East tracking Hong Kong stock indices
Introduce treasury share buy-back regime: targeting to implement mid-2024
Explore measures to enhance listing regime, improve transaction mechanism, boost investor services, step up market promotion, etc.
Earmark $100 million to boost mega-event promotions over next 3 years
Reduce salaries tax and tax under personal assessment for the assessment year 2023/2024 by 100%, subject to a $3,000 ceiling
Reduce profits tax for the assessment year 2023/2024 by 100%, subject to a $3,000 ceiling
Green and Sustainable Finance Grant Scheme: extended to 2027
Green and Sustainable Fintech Proof of Concept Subsidy Scheme: to be launched in the first half this year
Allocate $65 million to concessionary measures for Hong Kong-registered ships that have attained a high rating under international standards of decarbonisation
Study green-methanol bunkering for local and ocean-going vessels
Promote use of Sustainable Aviation Fuel in Hong Kong
Photovoltaic technology: Launch a pilot scheme to explore applications on facades of government buildings
Electric vehicles: Extend the first registration tax (FRT) concessions for electric vehicles to March 2026 with concessions reduced by 40%
Maximum FRT concession under the “One for One Replacement” Scheme: $172,500
Concession ceiling for general electric private cars: $58,500
Not applicable to electric private cars valued at over $500,000 before tax
Launch phase 1 of Project mBridge to settle cross-boundary transactions for corporates
Commence phase 2 of the e-HKD Pilot Programme
Expand the scope of e-CNY pilot testing in Hong Kong, including topping up e-CNY wallets by FPS
Establish the Hong Kong Microelectronics Research and Development Institute in 2024 to facilitate research collaboration on third-generation semiconductors
Issue $70 billion worth of retail bonds:
Silver bonds: $50 billion
Green bonds and infrastructure bonds: $20 billion
$100 million to promote sustainable development of financial services
Introduce legislative proposal to implement "patent box" tax incentive. Profit tax rate to be reduced to 5%
Headquarters of the "International Organization for Mediation" to be hosted in Hong Kong
Continue to promote Hong Kong's legal and dispute resolution services in the Mainland, the Middle East and ASEAN member states
Tobacco control: increase the duty on cigarettes by 80 cents per stick, with immediate effect
All details of the budget and recordings of Mr Chan's presentation to the Legislative Council can be viewed on the dedicated Budget 2024/2025 website.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
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