Hong Kong Trims Budget Handouts With Slowing Economy in View

(Bloomberg) — Hong Kong’s economy is forecast to slow this year as the city grapples with weaker property values and the fallout from U.S.-China trade tensions, leading to a more modest range of budget handouts than last year.

The economy will grow by 2 percent to 3 percent, Hong Kong Financial Secretary Paul Chan said, after the 3 percent pace in 2018. For the final three months of 2018, GDP expanded 1.3 percent from a year earlier. Output contracted when compared with the third quarter.

“As a small and totally open economy, Hong Kong has been susceptible to economic headwinds over the past few months, as evidenced by notable slackening growth and diminishing confidence of enterprises in the future outlook,” Chan said according to a prepared statement online.

In his speech announcing the new budget, Chan emphasized caution on the outlook for the global economy and Hong Kong, while looking ahead to “enormous business opportunities in close proximity” to Hong Kong as a key cog in the Greater Bay Area development spearheaded by China.

Boosting Hong Kong’s stature in the competitive high-tech industry was an early area of focus for Chan’s budget, with funds ear-marked in various areas including:

• HK$16 billion to qualifying universities to enhance or refurbish campus facilities, particularly those essential to research and development, including laboratories
• HK$5.5 billion for the development of Cyberport 5, an expansion of Hong Kong’s tech campus meant to attract technology companies and start-ups, with view to start construction in 2021
• A two-tiered enhanced tax deduction for eligible R&D spending to encourage more activity in that area

Chan also highlighted Hong Kong’s potential as a dispute resolution platform for the wider Belt and Road initiative, allocating HK$150 million to support development.

On the tax front, Chan introduced a 75 percent reduction for salaries tax and tax under personal assessment up to a maximum of HK$20,000 for the year, benefiting an estimated 1.91 million taxpayers and reducing government revenue by HK$17 billion. That’s a lower cap than the HK$30,000 a year ago.

A few other handouts:

• Reducing profits tax by 75 percent to a ceiling of HK$20,000, again lower
• Waiving property rates for four quarters, subject to a ceiling of HK$1,500 per quarter for each rateable property
• Extra allowance to social security recipients
• A one-off grant to students in need of HK$2,500 to support learning
• A one-off additional $1,000 worth of vouchers to elderly who qualify

Chan is also expected to announce funding to revitalize the waterfront and public toilets, according to local media reports ahead of the budget.

The city’s fiscal surplus will shrink to an estimated HK$58.7 billion ($7.5 billion), Chan said, significantly less than the HK$149 billion of last year. Fiscal reserves are expected to reach HK$1.16 trillion by March 31, Chan said.

(Updates throughout with more details.)

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