While the forecasted deficit of HK$ 101 billion turns into a surplus of HK$19 billion, economic growth rebounds to 6.4% after a two-year recession, the unemployment rate goes down from 7.2% to 3.9%, all permanent residents receive HK$10,000 while salaries and profits tax is reduced significantly, many of the announced measures seem to be fruitless attempts to rescue businesses which may later go bankrupt anyway and appear to postpone financial difficulties, rather than curing them. Overall, a relaxation of COVID restrictions, in line with the policy adopted by many countries around the globe, would be a more ideal solution for Hong Kong, together with inventive and effective solutions to combat the unprecedented crisis.
It is the yearly tradition of the financial secretary in Hong Kong to deliver the annual budget each year in February, and so the new budget was announced yesterday, 23 February 2022. This includes a summary of the economic development of the HKSAR (Hong Kong Special Administrative Region) for the current financial year, which lasts from 1 April 2021 until 31 March 2022, and an outlook for the coming financial year from 1 April 2022 to 31 March 2023.
1. 6.4% growth after 2-year recession, unemployment rate down from 7.2% to 3.9%
An originally forecasted deficit of approximately HK$ 101 billion will turn into an estimated surplus on 31 March 2022 of approximately HK$19 billion, mostly due to the increased revenue generated from land sales and profits tax. Rebounding from a two-year recession, the economy of Hong Kong has been growing this year by 6.4%, outperforming the worldwide average significantly, and parallelly the unemployment rate fell from 7.2% to 3.9%. These figures serve as evidence showing once again that Hong Kong is able to recover way faster from economic recessions which started with the social unrest and the civil protests back in early 2019, and then continued due to the COVID crisis emerging in China from December 2019 onwards.
2. HK$10,000 for all permanent residents; Salaries and profits tax reduced by 100%
At the beginning of this year, i.e. January 2022, Hong Kong was hit by its hardest COVID wave so far, with cases estimated to be in the tens of thousands by the end of February 2022. The government is allocating a total amount of HK$ 67.5 billion to various governmental departments to boost anti-epidemic measures, such as testing capacities. In addition, and in line with the traditions established in the previous years, the financial secretary announced several one-off measures to boost the local economy and support citizens during the crisis brought about by the pandemic. The most notable measures among all include the following:
Each Hong Kong permanent citizen will be credited with an amount of HK$10,000 into their e-wallet for local consumption, comparable to last year’s e-vouchers with an increase of HK$5,000 in the amount;
Salaries and profits tax is reduced by 100%, subject to a ceiling of HK$10,000;
Taxpayers that pay rent for their homes are given an allowance of not more than 100,000 HK$ to be deducted from their personal tax;
A subsidy of HK$1,000 is credited to each residential electricity account;
A subsidy for rates for residential properties will be granted of HK$1,500 for the first two quarters of the year and HK$1,000 for the last two quarters of the year respectively;
The same subsidy for rates applies for rates for non-residential properties with a ceiling of HK$5,000 for the first two quarters of the year and HK$2,000 for the last two quarters of the year respectively;
Recipients of social security subsidy will receive an allowance equivalent to 1.5 months of the standard rate for several assistance programs;
A 100% waiver will be granted to costs for certain school examinations, as well as business registration fees.
3. Further measures include protections for tenants, public transport subsidies
Whereas the above initiatives mirror many of the measures that are already in place and thus were expected from the previous years, aiming at supporting and boosting the local economy and the taxpayers, the government also announced several additional measures that are targeted directly at supporting individuals and local businesses suffering severely under the COVID crisis, for instance:
Lowering the threshold for the Public Transport Fare Subsidy Scheme from HK$400 to HK$200;
Prohibiting landlords from terminating certain businesses in case of failure of paying rent for a period of up to six months;
Extending a special loan-guarantee for eligible individuals and increasing the ceiling of the loan facility;
Extending the possibility for the application for low interest loans for businesses;
Increasing the cap on a mortgage insurance program for individuals, for families seeking to purchase their own properties.
4. Measures appear to postpone financial difficulties, rather than curing them
The announced measures consist of some already introduced and well-known measures such as a cap on profits and salaries tax and certain measures aiming at supporting businesses that are struggling to keep afloat under the current Hong Kong COVID restrictions. While the general measures will certainly help the local businesses and citizens with alleviating their imminent financial needs, whether the additional announced measures will bring about any significant impact and ultimately save small businesses from the edge of bankruptcy remains to be seen.
It appears that most of the additional measures provide some immediate relief to businesses, but the measures will most likely serve to postpone their financial difficulties, rather than cure them in the long run. As an example, a tenant who is unable to afford paying off its rent for the next six months may be able to avoid eviction or lawsuits by its landlord. However, eventually it will have to repay the outstanding amount in its entirety by the end of the sixth months, the lump-sum of which can be rather substantial.
5. Seemingly fruitless attempt to rescue businesses, questionable COVID restrictions
Further, special loans and loan guarantees may help solve immediate cash flow problems of individuals and businesses, but these loans will eventually mature, and the amounts thereof will have to be repaid sooner or later. The lenders’ ability to revive their financial status and availing themselves to make due repayment in the six-month window is again questionable.
It leads us back to the discussion of whether a relaxation of the current COVID restrictions, as in line with the policy adopted by many countries around the globe, would be a more ideal solution for Hong Kong amidst the economic downturn of the past three years. Instead of investing a substantial sum in a seemingly fruitless attempt to rescue businesses which may regardless go bankrupt in the next months, perhaps it is prime time that the Hong Kong government start confronting the conflicts between safeguarding public health, reducing harm to the economy as collateral damage, and managing public reception, and come up with inventive and yet efficient and effective solutions to combat the unprecedented crisis. It’s time that we start considering endorsing the bold transition of “living with the virus".
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