Beyond 2023/24 Hong Kong Budget scenario
That day, the Financial Secretary, Mr. Paul Chan, said that due sustained impact brought by the COVID pandemic, geopolitical tensions, supply chain disruptions, elevated inflation, aggressive monetary policy tightening by major central banks across the globe, and soaring interest rates, negative economic growth of 3.2% and a fiscal deficit of more than $100 billion are forecasted for 2022 financial year.
In 2023, while Hong Kong’s economy will likely gather steam as its connections and exchanges with Mainland China and rest of the world gradually resume, the external environment will remain complex and challenging, Chan said.
The goal in working on the Budget is to take a forward-looking approach for economy recovery, setting out plan for Hong Kong’s long-term development, to strengthen city’s revival while addressing people’s concerns, and to create a strong impetus for growth, making good use of resources for stabilizing and stimulating the economy as well as easing the pressure on members of the public and businesses.
Different sectors expressed concerns about Hong Kong’s fiscal position, and took the view that the Government should reduce expenditure and lower the level of fiscal deficit, thus avoiding a further drop in fiscal reserves, with HK$109 billion budget deficit estimated for 2022/2023, and HK$848.1 billion fiscal reserves estimated as at 31 March 2023, approximately twelve months’ worth of Government spending.
Some others saw that the economy is still sluggish, and small to medium enterprises as well as individuals, especially that of the grassroots, are still under pressure. Members of the public are expecting additional resources to promote social and economic development in future, and relief measures as part of the counter-cyclical measures taken by the Government.
Despite the complicated and volatile external environment, the business sector in general has become more optimistic about economic recovery this year. It is important to set our sights far enough so that we can see the trend of future development opportunities and challenges.
That said, at this stage it would be desirable for Government to provide financial support to businesses and individuals, implementing a 100% tax reduction for 2022/23 personal assessment tax, salaries tax, and profits tax, with a cap of HKD25,000 per case. Due to the recent rise in interest rates, it is recommendable increasing the deduction cap for home loan interest to HKD150,000 per year and extending the maximum deduction period to 25 years. The deduction cap for domestic rent should also be adjusted in the same way.
Besides, the Government should attract businesses, investments and talents, introducing competitive tax and financial incentives for companies, trading or intellectual property hubs choosing Hong Kong as their regional headquarters, including e-tax filing systems and tools to facilitate taxpayers’ s compliance, as well as reconsidering the possibility of resuming the Capital Investment Entrant Scheme (CIES).
Moreover, the Government could attract overseas talent, by offering incentives such as cash bonuses, housing subsidies, tax deductions for children’s education, a better tax relief on double taxes, and assistance in registering talent’s self-developed intellectual property for starting their business in Hong Kong through a one-stop shop.
Additionally, the Government shall strengthen Hong Kong’s traditional advantages and develop emerging industries, unified fund exemptions should be extended to institutional asset owners, private fixed income and credit funds, while tax and financial incentives should be considered in order to encourage financing of environmental, social and governance (ESG) projects. Furthermore, a tax policy should be developed to address emerging industries, such as metaverse, web 3.0, and digital assets.