Deep Dive: Hong Kong’s budget deficit means fewer perks for residents, increase in salaries tax for high earners

Hongkongers will receive fewer perks this year after the value of sweeteners was cut by more than 80 per cent in the city’s latest financial budget, given the huge deficit of more than HK$100 billion. The e-voucher scheme has not been renewed, and taxpayers have fewer reductions.

Other relief measures that residents enjoyed were also cut in the 2024-25 budget. It committed only HK$11.52 billion to one-off relief measures, down from the previous HK$59.38 billion. Some previous relief measures included HK$1,000 subsidies for electricity bills, the suspension of the university entrance exam fee and extra tax allowances.

In the latest budget, finance chief Paul Chan Mo-po focused on economic recovery and strengthening confidence. He unveiled plans to deepen innovation and technology, seek new markets, and attract tourism and investment while taking advantage of opportunities offered by closer integration with mainland China.

“We believe it is better to improve the economy – which in turn can make people happier and have more money to spend – than help residents increase their income through government support measures,” he said. “Thus, we will put more resources into pushing economic development.”

The biggest sweetener missing this year was the consumption voucher scheme. Handouts ranging from HK$5,000 to HK$10,000 were given to residents over the last three years. It cost the government HK$33 billion in the last financial year.

Similar to the last budget, the government will offer an extra half-month allowance for Comprehensive Social Security Assistance, an old age allowance, an old age living allowance, or a disability allowance, while those receiving the working family allowance will also be offered extra payments. The measures involve an additional expenditure of nearly HK$3 billion.

Cherry Chan Hiu-tung, 25, is the mother of a two-year-old. She and her husband, 29-year-old Sunny Yau Ka-yuk, were disappointed by the lack of government support through additional education and healthcare subsidies.

“During last year’s policy address, the chief executive announced goals to boost childbirth rates, so we were looking forward to measures that can ease the burden of having children,” she said. “It feels like this year’s budget did not have much to do with us as a family. I was surprised that he announced fewer subsidies targeted at the general public compared to previous years.”
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Question prompts:

1. Which of the following statements about the budget are correct?
(1) Hong Kong recorded a deficit of more than HK$100 billion last year.
(2) The government is prioritising economic development over individual relief measures.
(3) The old age allowance and additional tax allowances will still be provided.
(4) There will be no cash handouts for Hong Kong residents this financial year.

A. (1), (2) and (3) only
B. (1), (2) and (4) only
C. (1), (3) and (4) only
D. all of the above

2. List TWO sweeteners the government has scrapped in the latest financial budget.

3. In response to the reduced relief measures for residents, the financial chief said that improving the economy could make people happier and give them more money to spend. To what extent do you agree with his statement? Explain your answer using News.

Question prompts:
1. Based on your understanding of News, what might be the purpose of the “monthly fireworks and drone shows” mentioned by the man in the cartoon?

2. What does the cartoon suggest about the financial budget? How does it relate to Cherry Chan’s statement in News?

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• Those with an annual income exceeding HK$5 million will be subject to a 16 per cent rate, affecting around 12,000 wealthy taxpayers in the city

• Government will also revive a 3 per cent levy on hotel stays and raise the tax on tobacco products

Hong Kong raised the salaries tax for those earning more than HK$5 million a year and revived a hotel accommodation charge as part of efforts to offset a ballooning HK$101.6 billion deficit.

Financial Secretary Paul Chan Mo-po said the city’s fiscal reserves had dropped to HK$733.2 billion due to challenges posed by the Covid-19 pandemic and the external environment.

To tackle a growing deficit, the government announced an income tax increase based on the “affordable users pay” principle, which affects about 12,000 of Hong Kong’s wealthiest people. Under the measure, the first HK$5 million of net income will continue to be subject to the standard 15 per cent rate, while the portion exceeding that amount will be taxed at a rate of 16 per cent.

The change means top earners will pay an average of HK$75,800 extra in tax per year. The measure is expected to generate about HK$910 million in extra revenue for the government each year.

Authorities will also reintroduce the 3 per cent accommodation tax on charges paid by guests beginning on January 1 next year, 17 years after the government waived the fee.

“The [tax] to be collected is estimated to only account for less than 1 per cent of the total spending of overnight visitors in Hong Kong,” Chan said, adding that the measure would generate HK$1.1 billion in annual income. He also pledged to allocate HK$1 billion to improve tourism infrastructure and services to attract high‑spending overnight visitors.

The tobacco tax was also raised for the second year in a row. The duty was increased by 80 HK cents a stick with immediate effect, an increase of about 32 per cent. Smokers will pay an extra HK$16 for a pack of 20 cigarettes, pushing the total price to about HK$94. Duties on other tobacco products will increase by the same proportion.

The proportion of duty in the retail price of cigarettes was raised from 64 per cent to about 70 per cent, but the figure is still below the 75 per cent recommended by the World Health Organization. While increasing the tobacco tax was mainly meant to reduce smoking, the move is projected to boost government revenue by HK$1.24 billion each year.

“The government will review various fees and charges in a timely manner,” Chan said. “The affordability of the general public and businesses will also be taken into account.”
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Question prompts:

1. What tax changes and increases were announced in the financial budget?
(1) Consumption tax of 8 per cent for visitors
(2) Salary tax of 16 per cent for top earners
(3) Accommodation tax of 3 per cent
(4) Tobacco tax increase of 32 per cent

A. (1) and (2) only
B. (1), (3) and (4) only
C. (2), (3) and (4) only
D. all of the above

2. According to the financial secretary, list TWO principles the government keeps in mind when adjusting taxes.

3. The financial secretary pledged to allocate HK$1 billion to improve tourism infrastructure and services to attract high-spending overnight visitors. Coupled with the hotel tax, do you think these measure effectively addresses the city’s needs?

Question prompts:

1. List TWO groups that are likely to be affected by the tax changes.
2. Do you think the tax increases are reasonable? Should the government increase the amount further? Explain using Issue and Glossary.

accommodation tax: a 3 per cent tax on hotel accommodation paid by guests, generally tourists to the city. The government waived this tax in July 2008 but will reintroduce it in January 2025.

consumption voucher scheme: initially introduced in 2021, the scheme aimed to support Hong Kong’s economic recovery from Covid-19 by providing eligible residents with e-vouchers worth HK$5,000 to HK$10,000. It was given for three years during the pandemic but scrapped in the latest budget.

Comprehensive Social Security Assistance: money from the Social Welfare Department for those who cannot support themselves financially.

financial budget: the annual budget proposal prepared by Hong Kong’s financial secretary and given to the Legislative Council. The budget outlines the economic state of the city and includes the government’s plans for making money and spending its funds.

salaries tax: the money an individual must pay the government based on their income. The amount is generally calculated at a standard rate of 15 per cent, but the latest budget has introduced a new salary tax rate of 16 per cent specifically for individuals earning over HK$5 million yearly.

sweeteners: relief measures, generally announced during the budget, that benefit the public, such as cash handouts and tax returns.

tobacco tax: the fee a person must pay when buying tobacco products in addition to the initial price. The fee was increased by 32 per cent in the latest budget, meaning a pack of cigarettes will now cost around HK$94; 70.2 per cent of the price is tax.

News

1. B
2. HK$1,000 subsidies for electricity bills/ suspension of the university entrance exam fee/ additional tax allowances/ consumption vouchers (any two)
3. I disagree that reducing relief measures to emphasise economic growth can make people happier. First, cutting sweeteners will directly impact the lives of vulnerable individuals who rely on aid, such as tax allowances and electric bill subsidies, lowering their financial stability and well-being. While economic growth can bring benefits, it may not reach every resident equally. Additionally, the immediate and tangible assistance provided by sweeteners is more direct and effective in improving people’s lives compared to the long-term impacts of economic growth. (accept other reasonable answers)

Cartoon

1. To boost tourism and attract visitors to Hong Kong.
2. It suggests that the financial budget falls short of addressing the needs of residents, particularly families like Cherry’s. The cartoon depicts a couple visiting the affordable housing department, only to be informed about the proposed monthly fireworks and drone shows. This portrayal notes the absence of housing-related concerns in the budget, which emphasised tourism and economic development. This aligns with Chan’s disappointment regarding the lack of government support aimed at the general public, such as additional education and healthcare subsidies. (accept other reasonable answers)

Issue

1. C
2. “affordable users pay” principle/ affordability for the general public and businesses
3. I believe that allocating HK$1 billion to improve Hong Kong tourism is a reasonable measure as it enhances the city’s appeal and attracts more visitors, leading to increased consumption and a boost to the local economy. Additionally, implementing a hotel tax can generate HK$1.1 billion for the city every year, which can further generate revenue for funding these improvements. (accept other reasonable answers)

Chart

1. The resumption of the accommodation tax will affect visitors to Hong Kong/ the increase in the tobacco tax will affect smokers/ the two-tiered standard rates scheme will impact high-income individuals (any two)
2. I believe the salary and tobacco tax increases are reasonable since they primarily affect smokers and top earners rather than the general public. Moreover, when comparing Hong Kong’s tobacco tax and income tax rates to international standards, they are still relatively low, so adjusting these taxes is appropriate. (accept other reasonable answers)