Pedestrians shop in Hong Kong, China, on Saturday, Oct. 15, 2022. Hong Kong wants to become an international hub for virtual assets as the city seeks to strengthen its status as a global financial center after the disruption caused by the pandemic. Photographer: Lam Yik/Bloomberg via Getty Images
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Hong Kong Finance Secretary Paul Chan struck a positive tone in his budget speech on Wednesday as he announced measures to boost economic recovery after the Covid-19 pandemic, as well as incentives to help businesses and residents.
Chan said the city is in the early stages of recovery since lifting most of the strict Covid measures late last year.
“I believe that Hong Kong’s economy will see a recovery this year, and I remain positive,” Chan said during his budget speech. “However, the economic recovery is still in its early stages, and there is a need for people and businesses to get back on track.”
Hong Kong’s economy is expected to recover 3.5% to 5.5% in 2023, after shrinking 3.5% in 2022, Chan said.
In January, the global financial center reopened its border with mainland China, for the first time in three years.
Hong Kong is closely following China’s zero-Covid policy until mid-2022 when the city begins to lift some restrictions. In December, the Asian financial center relaxed almost all of the Covid requirements.
“Domestically, the outbreak of the fifth wave of the epidemic at the beginning of last year and the worsening financial situation have weighed heavily on domestic demand,” Chan said on Wednesday.
“However, with the local epidemic situation stabilizing, and the government’s counter-cyclical measures and the payment of consumption vouchers having an important impact, the labor situation is improving.”
Budget handouts
As part of the budget incentives, Hong Kong will give consumer vouchers worth HK$5,000 ($637) per person to all adults this year. That is half of what the government provided in the previous budget in 2022 – or HK$10,000.
The finance secretary also announced measures to reduce the salary tax by 100%, capped at HK$6,000. This is lower than the cap set for the previous budget.
Some economists have previously questioned the effectiveness of handouts in promoting economic recovery.
Still, William Ma of Grow Investment Group, said that these measures will help lift domestic consumption.
“I think HK$5,000… no [what] everyone is looking forward to coming. And the second plus the HK$6,000 tax deduction – all of these combined, I believe [will] create good momentum for the recovery of domestic consumption [the first and second quarter]”Ma, told CNBC” Street Signs Asia “Wednesday.
Hong Kong’s finance chief also announced plans to submit a legislative proposal in the second half of this year, which would impose a minimum tax rate of 15% on multinational companies with a global turnover of at least (nearly $800 million) from 2024-25.
With cost pressures expected to increase along with economic recovery, Chan predicts that headline inflation in 2023 will be at 2.9%.
However, he noted that in the medium to long term, Hong Kong’s economy will see “enormous opportunities.”
The government estimates that Hong Kong will have a budget deficit of HK$139.80 billion for the 2022-2023 financial year. That’s more than the original expectation of about HK$56 billion.
Fiscal reserves will fall to HK$817.3 billion by the end of the financial year ending March 31, Chan said.
– CNBC’s Lim Hui Jie contributed to this report