After delivering his latest Budget amid extraordinary conditions for the global economy, Financial Secretary Paul Chan spoke to more than 500 executives at the joint Hong Kong Business Community Webinar on 12 March. He shared details about the policies that affect the business community in particular, and answered questions from participants on a wide range of topics.
Chan began by noting the circumstances of drafting this year’s economic blueprint for the city.
“This is my fifth Budget as Financial Secretary,” he said. “Each year, the Budget has its singular challenges, and this year seems to be the most difficult so far.”
The social unrest in 2019 followed by the Covid-19 pandemic mean that we are experiencing the longest recession in the history of Hong Kong, with GDP down 6.1% in 2020, and unemployment above 7%. At the same time, he said, the fourth wave of coronavirus infections was still not under control.
The extraordinary policy measures and spending to tackle the impact of the virus so far has created a record deficit of an estimated HK$257.6 billion, which has depleted the Government’s reserves.
On a more optimistic note, the Financial Secretary said he expects better economic conditions are around the corner, and has estimated growth of around 3.3% from 2022 to 2025. However, he will need to rebalance Government spending over the next few years and use resources in a judicious manner.
“We are focusing on measures that will create more of a multiplier impact on society,” he said.
Policies to deal with the acute impact of the pandemic include the creation of temporary jobs, proposed loans for the unemployed, electronic spending vouchers, and enhancements to loans and funding schemes for business. Other measures focus on securing Hong Kong’s longer term future, such as enhancing the digital economy.
“One of the key lessons learned during Covid-19 has been to embrace digitalization,” the Financial Secretary said. “The better we embrace it, the better our business opportunities.”
In this respect, the Government has allocated funds to the Trade and Development Council to develop digital platforms to assist businesses. To lead by example, the Government will also move more of its own services to online.
Protecting the environment will also play a major role in policies for the city’s development.
“Green future is a mega trend,” the Financial Secretary said. “Both Europe and the Mainland have declared they will aim for carbon neutrality by 2050 and 2060. Hong Kong also has a target of 2050.”
To help the city achieve this goal, plans include Green Bonds, incentive schemes for businesses, and measures to encourage electric vehicles, cleaner air and renewable energy. “Green city goes hand in hand with economic development,” he added.
To conclude his presentation, the Financial Secretary summarised the prospects for Hong Kong’s public finances over the next five years.
“In a nutshell, this year the operating deficit is huge – mainly because of the counter-cyclical measures,” he said. “In the coming few years, we will still be in the red, but this will give us the breathing space to explore options to increase Government revenue.”
Hong Kong will gradually reduce its deficit, returning to a surplus in around four years.
In the Q&A session that followed, the Financial Secretary reiterated the importance of maintaining financial discipline. Besides being a requirement of the Basic Law, we also need to demonstrate to the outside world that we are capable of living within our means.
“It would be easy to borrow, given the current low interest rates. But borrowing money to fund our daily expenditure is a dangerous slope.”
The Government will be issuing more Green Bonds, however, and Chan gave some more details about how this programme will operate.
“For the Green Bond criteria, we are adhering to international standards as to what projects are admissible,” he explained.” This is a transparent and very stringent process.”
The enhanced funding schemes, such as the BUD scheme, has created very high demand, but this has also led to a “traffic jam” for applications, one participant remarked. In response the Financial Secretary said that he would speak to his colleagues about streamlining the process.
On the topic of broadening Hong Kong’s revenue streams, Chan sounded a note of caution. For any proposed new taxes, the Financial Secretary said he would have to weigh the possible impact on Hong Kong’s competitiveness and peoples’ livelihoods. “At the moment, we do not think it is appropriate timing to introduce a tax like GST.”
He added that the possible impact of the OECD’s BEPS 2.0 blueprint was being studied closely, particularly the proposal to introduce a global effective minimum tax rate.
On Hong Kong’s status as a global business hub, Chan shared the figures available that suggest our attractiveness remains undimmed. “If you look at our bank deposits – in both 2019 and 2020 they continued to increase.”
We also have more than 9,000 Mainland and international companies operating in Hong Kong, in a testament to our safety and stability, while reforms to the city’s listing regime have led to a huge increase in market capitalization and daily turnover.
But while Hong Kong’s cores strengths and competitiveness have not changed, the Financial Secretary said that we need to do more to communicate our advantages to the rest of the world. To this end, a high-level cross-agency Steering Group has been set up to promote Hong Kong’s attractiveness to the Mainland and overseas markets.
Finally, many participants asked whether Hong Kong would join the Mainland’s “vaccine passport” scheme, and more generally about reopening the borders. The Financial Secretary replied that the Government’s priority was getting the pandemic under control. However, he added that the Government was also working hard on enabling people to travel once again.