A balanced budget doing a balancing act for many
An overall balancing budget focuses on stabilizing the economy and relieving people’s burden.
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After two years of contracting gross domestic product, Financial Secretary (FS) Paul Chan Mo-po breathed a sigh of relief in his speech on the Hong Kong Budget 2021-22 when announcing the economy is expected to rebound in the second half of 2021, growing between 3.5% and 5.5%.
Against the backdrop of a more positive outlook, the FS pledged in the latest Budget that stabilizing the economy and relieving people’s burden are the focuses. The relief measures costing more than HK$120 billion come at a critical time when the city has seen the unemployment rate rising to 7%, nearing a 17-year high. Hong Kong will record an unprecedented deficit of HK$257.6 billion in 2020-21, about 15% lower than the previous estimate of HK$300 billion. With the fight against COVID-19 and associated relief measures significantly depleting the Government’s fiscal reserves, the FS emphasized increasing fiscal space in a prudent manner.
The proposed reduction for the 2020-21 final salaries tax will be capped at HK$10,000, although less than last year, this relief measure will still benefit middle- and lower-income earners. After more than a decade of regular sweeteners when the fiscal reserves were bloated, one of this year’s sweeteners took a digital turn. E-consumption vouchers in instalments with a total value of HK$5,000 will be handed out to each eligible Hong Kong permanent resident and new arrival aged 18 or above.
Agnes Chan, EY Managing Partner, Hong Kong and Macau, says, “We are very pleased that the Government has taken up our proposal to introduce e-consumption vouchers. Although they will involve HK$36 billion, it is an exceptional one-off measure taken in light of the current special circumstances and should not impose a burden on Hong Kong’s long-term fiscal position. In fact, similar measures introduced in other locations such as Taiwan and Macau have brought positive impact to those economies.”
Chan added that by encouraging local consumption, the measure can facilitate the development of a digital economy, bringing about an estimate of more than 1% GDP growth.
The FS introduced counter-cyclical measures costing over HK$120 billion to stimulate the economy and alleviate hardship. He correctly highlighted the unique role Hong Kong can play as a gateway under the dual circulation development strategy and in the Greater Bay Area (GBA), further developing Hong Kong as a green bond hub and consolidating its competitiveness as an international financial center.
Paul Ho, Financial Services Tax and Business Advisory Services Partner at Ernst & Young Tax Services Limited, comments, “We welcome the announcement of one-stop support services for family offices interested in establishing a presence in Hong Kong and a review of tax arrangements pertaining to family offices. This move will definitely enhance Hong Kong’s position as a regional hub for family offices, especially in the context of the broader GBA initiative.”
Ho is also delighted to see the Government’s proposal to further develop the fund industry in Hong Kong. The proposal that allows foreign investment funds to re-domicile to Hong Kong under the Open-ended Fund Company (OFC) and Limited Partnership Fund (LPF) regimes will further strengthen its position as an international asset and wealth management center.
With all the promises pledged to provide much needed relief in times of austerity for many affected by the pandemic, a rebound in the economy later in the year will certainly be good news for all.