HK Budget: No surprises

Hong Kong’s budget, released Feb. 27, was focused on health care and welfare but included virtually no innovative initiatives while critics raised doubts about how effective the proposed spending will be in changing the status quo.

Facing a number of headwinds in the global economy, Hong Kong’s budget surplus this year of $58.7 billion is less than half of last year’s $138 billion. Still, the city has fiscal reserves of $1.16 trillion. Hong Kong’s GDP grew by 3 percent over the last year and unemployment remain enviably low at 2.8 percent while inflation was 2.6 percent, said Mr Chan.

The ongoing surplus position means that Hong Kong is in a position to continue handing out sweeteners. In his budget speech, the city’s Financial Secretary Mr Paul Chan focused on health care and welfare. A third of the surplus will go to improving healthcare in the city and nearly half to enhancing community services.

Usual sweeteners

Very little of what Mr Chan announced was new or surprising. The measures include various tax cuts. Mr Chan proposed reducing the salaries tax and tax under personal assessment by 75 percent with a ceiling of $20,000 to benefit some 1.91 million people and a cut to profits tax of 75 percent up to $20,000 that will benefit roughly 145,000 people. The city will always waive rates for properties for four quarters with a cap at $1,500 per property. Before you cheer, last year’s cap on the tax cut was $30,000 and the cap on the property waiver was $2,500.

Those who get social security, elderly subsidies and disability allowance will get one more month of allowance this year, a frequently used sweetener. The elderly will get an additional $1,000 worth of vouchers for healthcare services while students in need could get a one-off grant of $2,500.

For the business sector, the financial head intends to waive the business registration fees for 2019-20. Another $1 billion will be injected into the Dedicated Fund on Branding, Upgrading and Domestic Sales and each enterprise could receive $3 million at maximum.

To help SMEs tackle liquidity issues, the government will enhance concessionary measures under the SME Financing Guarantee Scheme and reduce the guarantee fee rates by 50 percent.

While helpful on their own, there is little in this budget that addresses changing conditions.

Mr David Webb, a well-known Hong Kong-based independent investor and activist, says this year’s budget is “a replay of last year’s” and there is nothing new.

“There’s no structural change to the tax system,” he says.

More healthcare support

Still, facing a shortage of doctors and hospital beds, the government intends to dedicate as much as $20 billion to shore up health care.

Roughly $10 billion will be set aside to set up a public healthcare stabilization fund for extra expenditures due to unexpected circumstances, additional recurrent funding of over $700 million will go to the Hospital Authority and an extra $5 billion will be used to upgrade and buy medical equipment. An additional recurrent subvention of $400 million will be injected towards drugs for patients.

But to alleviate an overloaded public healthcare system, Mr Webb says, increasing the number of doctors would be more practical than buying better equipment or raising salaries.

“Hong Kong should import more doctors with recognized qualifications. The problem lies on staffing,” Mr Webb says.

Mr Duncan Innes-Ker, regional director of Asia at the Economist Intelligence Unit, echoed those views.

“The budget was notable for the amount of additional spending it channeled towards health… However, we have yet to see if there will be further reforms to improve the supply of doctors in the territory, one of the key bottlenecks for healthcare provision,” he says.

Better service and city upgrading

Mr Chan also intends to set aside around $24 billion to help different social groups. There will be a $20 billion budget to expand welfare facilities such as day child care centres and elderly homes.
He plans to spend $1.36 billion on improving elderly care, $290 million for helping people with disabilities and $156 million for child care services.

For city building, $120 million will go to increasing the number of public chargers for electric cars to 1,700 by 2022, and another $6 billion for developing new harbourfront promenades and open spaces.

While the government has shown signs of wanting to invest in the long-term future of the city, Mr Innes-Ker says there is little mention of anything bigger or far reaching.

“It was notable that Mr Chan did not say much about the cost of the government’s most prominent long-term investment proposal, the Lantau Tomorrow land reclamation scheme,” he says.

The plan has been met with fierce criticism due to the enormous budget that many say could dry up Hong Kong’s reserves.