The latest Budget from Financial Secretary Paul Chan has been generally welcomed as uncontroversial. But this did not prevent a lively and entertaining debate taking place during a Chamber roundtable on the topic on 12 March.
Taking a macro view, former Government Economist KC Kwok noted that Hong Kong residents – in common with people around the world – like to complain. Local people do have some reasons to grumble, however. For example, living standards for some, particularly higher earners like doctors and lawyers, have plateaued.
“Twenty years ago, people could assume that their children would have better prospects than themselves. If you ask if this is still the case, for many middle-class people, the answer is ‘probably not’.”
Hong Kong is often compared unfavourably to Singapore, and indeed, the Lion City’s per capita GDP is much higher. But while both economies have seen their populations increase by around 1 million in recent years, in Singapore, 80% of the new arrivals have been university graduates, Kwok explained. And Singapore has already enacted a significant programme of land reclamation.
Turning to Hong Kong’s pillar industries, Kwok pointed to the downward trend affecting trade and logistics. “This sector is slowly being chipped away by innovation and technology,” he said. “The traditional trading role of Hong Kong is facing very serious challenges.”
On a more positive note, he noted that Hong Kong remains an important centre for regional headquarters of multinational companies.
With such a large Budget surplus, Terence Chong, Associate Professor of Economics at the Chinese University of Hong Kong, said: “I always suggest to the Government to remove salary tax.” He added that salary tax is a relatively small part of the government’s income.
Less welcome is the news that Hong Kong’s GDP growth has slipped in the past year. “One reason is sentiment regarding the trade war; the other is we have a bottleneck in the labour force,” Chong said. “Even if more business opportunities emerge, we don’t have the people.”
He welcomed the Budget’s $1 billion injection into the BUD Fund to help SMEs, and the $400 million in seed capital for the Financial Reporting Council. “I hope this will make our stock market more healthy,” he said.
Chong also drew attention to the differences between Hong Kong and Singapore, particularly in housing.
“Hong Kong home ownership has been declining since 2003. Singapore solved this problem 20 years ago,” he said. “I suggest the Government needs to give the young people of Hong Kong some hope. They should learn from Singapore and build bigger flats to sell to young people.”
Grace Tang, Chairman of the Chamber’s Taxation Committee, delved into the details of some of the Government’s tax measures. For example, in promoting R&D, it has introduced a super-deduction of 300%, but this only applies to “qualifying expenditure on qualifying R&D.”
“When this policy came in, we had high expectations,” she said, “but when you look at the details it is actually quite limited.”
For example, R&D must be carried out in Hong Kong, and by a limited list of institutes. Tang suggested that it should be easier for R&D activities to qualify for the concessions, and added that the Government could consider offering tax concessions to start-ups.
Rounding off the event, Chamber Economic Policy Committee Chairman Peter Churchouse shared some of his personal opinions. “The pension system is clearly inadequate,” he said. “A lot of structural reform could be done to provide incentives for people to save for their retirement.”
He added that labour is a huge issue: “We need more bodies in the healthcare sector, and we also need more vocational training.”
Churchouse said his wish is for a “proper sovereign wealth fund,” like in Singapore and Norway, which would also serve the purpose of supporting local companies.