The Hong Kong budget, delivered by Financial Secretary Paul MP Chan FCPA on 27 February, announced a surplus of HK$58.7 billion for 2018-19, down from the surplus of HK$138 billion for 2017-18.
The budget was prepared against a backdrop of global economic uncertainty. Unlike his last budget speech, where the Financial Secretary stated, "the global economy remains on an upward trend”, in this year’s speech he noted that “the global economy, beset with considerable uncertainties and downward pressures, has abruptly turned from synchronised robust growth early last year to the current synchronised slowdown.”
Due to these economic headwinds, the government is forecasting that Hong Kong’s economy will grow two to three per cent in 2019, with a forecast surplus of HK$16.8 billion for 2019-20.
However, the speech points out that the rate of growth could be higher if trade relations between China and the US are to improve.
Despite a smaller surplus, CPA Australia notes that Hong Kong’s public finances are projected to remain one of the healthiest, if not the healthiest in the world, with reserves forecast to be HK$1178 billion as at March 2020, or nearly 40 per cent of Hong Kong’s GDP.
Given the weakness in the prevailing economic conditions, the Hong Kong government appears to have taken a measured approach to framing the 2019-20 budget. Despite this, the budget contains a range of measures that are aimed at "supporting enterprises, safeguarding jobs, stabilising the economy [and] strengthening livelihoods.”
A summary of many of the new measures announced in the Budget speech are included below:
Support for enterprises
Waiving the business registration fees for 2019-20. This is expected to benefit 1.4 million business operators and reduce government revenue by HK$2.9 billion.
Reducing profits tax for 2018-19 by 75 per cent, subject to a ceiling of HK$20,000, down from HK$30,000 in 2017-18. The reduction will be reflected in the final tax payable for 2018-19. This will reduce tax revenue by HK$1.9 billion.
Extending and enhancing the Technology Voucher Programme, including doubling the funding ceiling for each enterprise from HK$200,000 to HK$400,000 to encourage the wider adoption of technology by local enterprises to improve their efficiency and services.
Injecting HK$1 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund). The BUD Fund will be extended it to all economies that have entered into an free trade agreement with Hong Kong and the funding ceiling per enterprise will increase from HK$2 million to HK$3 million.
Extending the special concessionary measures under the SME Financing Guarantee Scheme to 30 June 2020.
The Financial Secretary also stated that he “will keep a close watch on the external and local economic situation and introduce appropriate measures when necessary to support enterprises and stabilise the economy.”
Support for individuals
Reducing salaries tax and tax under personal assessment for 2018-19 by 75 per cent, subject to a ceiling of HK$20,000, down from HK$30,000 in 2017-18. The reduction will be reflected in the final tax payable for 2018-19. This will reduce tax revenue by HK$17 billion.
Waiving rates for four quarters of 2019-20, subject to a ceiling of HK$1500 per quarter (was HK$2500 in 2018-19) for each rateable property. This proposal is estimated to reduce tax revenue by HK$15 billion.
Providing an extra allowance to social security recipients, equal to one month (was two months in the last budget) of the standard rate Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance. This will involve an additional expenditure of about HK$3.8 billion. Similar arrangements will apply to recipients of the Working Family Allowance and Work Incentive Transport Subsidy.
Providing to each student in need a one-off grant of HK$2500 (up from HK$2000 in the last Budget) to support learning. Expected to cost around HK$890 million.
Paying the examination fees for school candidates sitting for the 2020 Hong Kong Diploma of Secondary Education Examination. Expected to cost around HK$160 million. This is an extension of a measure from the last budget.
Providing an additional HK$1000 worth of vouchers to the elderly eligible for the Elderly Health Care Voucher Scheme, involving an expenditure of about HK$1 billion. The accumulation limit of vouchers will also be raised from HK$5000 to HK$8000 to allow users greater flexibility.
The Government will allocate HK$20 billion for the purchase of 60 properties for accommodating more than 130 welfare facilities, including day child care centres, neighbourhood elderly centres, on-site pre-school rehabilitation services, etc. This initiative is expected to benefit about 86,000 people.
Support for financial services
Increase the amount of seed capital for the Financial Reporting Council to HK$400 million to help it to implement its expanded remit. The Government will exempt the levy under the new regime for the first two years.
The Government will continue to explore expansion of the channels for two-way flow of cross-boundary RMB funds.
The Government will continue its efforts to increase the quotas for and expand the scope of mutual access to the Mainland market as well as extend the Bond Connect to cover southbound trading.
The Government will study the case of introducing a more competitive tax arrangement to attract private equity funds to set up and operate in Hong Kong.
The Government stated without providing details, that it will continue to enhance relevant tax measures to qualifying corporate treasury centres (CTCs).
The Government is studying the establishment of a limited partnership regime for private equity funds, with a view to providing the industry with more fund structure choices.
The Government will continue its work on mutual recognition of funds arrangements with other jurisdictions to broaden the distribution network of local fund products.
Starting from 1 April this year, different types of onshore and offshore funds meeting certain conditions will be eligible for a profits tax exemption.
The Government will propose legislative amendments to provide a 50 per cent profits tax concession to eligible marine insurance and the underwriting of specialty risks, and allow for the formation of special purpose vehicle companies specifically for issuing insurance-linked securities.
To further encourage fintech in Hong Kong, the Government is planning for the use of the Faster Payment System (FPS) to provide the public with greater convenience in paying taxes, rates and water charges.
The Government has commissioned the Hong Kong Maritime and Port Board to established a task force to study tax and other measures that may attract ship finance companies to establish their presence in Hong Kong and developing Hong Kong as a ship leasing centre in the Asia-Pacific region.
Support for innovation and technology
The Government has earmarked HK$5.5 billion for the development of Cyberport 5. The expansion project is expected to provide about 66,000 square metres of floor area, and include facilities such as offices, co-working space, conference venues and data service platforms.
The Government will allocate additional resources to the Hong Kong-Shenzhen Innovation and Technology Park at the Lok Ma Chau Loop in addition to the HK$20 billion set aside in the last budget. No figure was provided as to how much would be set aside.
Funding for Technology Transfer Offices of designated universities, the Technology Start-up Support Scheme for Universities, State Key Laboratories and Hong Kong branches of the Chinese National Engineering Research Centre will be doubled to support more R&D work and the realisation of R&D results. This is expected cost no less than HK$800 million over five years.
The Government will set aside a dedicated provision of HK$16 billion for University Grants Committee (UGC)-funded universities to enhance or refurbish campus facilities, in particular the provision of additional facilities essential for R&D activities.
The Government will increase, with immediate effect, the monthly allowance for researchers with a Bachelor's degree from HK$16,000 to HK$18,000, and increase the monthly allowance for researchers with a Master's degree from HK$19,000 to HK$21,000. The funding period of such researchers will be extended from two years to three years with immediate effect.
The Government will invest HK$500 million to implement the IT Innovation Lab in Secondary Schools Programme in the coming three school years. Each secondary school benefiting will be granted HK$1 million to procure information technology (IT) equipment and professional services, and organise more relevant extra-curricular activities for students.
The Government will raise the maximum annual funding for each university under the Technology Start-up Support Scheme for Universities from HK$4 million to HK$8 million.
The Government plans to inject HK$2 billion into the Innovation and Technology Fund for launching a Re industrialisation Funding Scheme to subsidise manufacturers on a matching basis to help them set up smart production lines in Hong Kong.
The Government will introduce a pro-innovation government procurement policy this April so that innovative proposals stand a better chance of winning government contracts.
The estimated public housing production for the next five years is about 100,400 units, including about 74,200 units for public rental housing and under the Green Form Subsidised Home Ownership Scheme, and about 26,300 other subsidised sale units.
Based on preliminary estimate, the private sector will, on average, complete about 18,800 residential units annually in the next five years
The Government will include seven commercial sites in the 2019-20 Land Sale Programme, estimated to provide about 814,600 square metres of floor area, including the provision of a maximum of about 2,900 hotel rooms.
The Government will set aside HL$2 billion to support NGOs in constructing transitional housing.
The estimated recurrent government expenditure on public healthcare services will increase by 10.9 per cent to HK$80.6 billion in 2019-20
The Government will provide more than HK$700 million for the Hospital Authority (HA) to:
- increase the rate of allowance for on-call medical officers, the rate of Special Honorarium Scheme allowance and the salary of ward supporting staff
- increased the number of Advanced Practice Nurse posts to enhance evening ward services
- increase the number of allied health professional posts to improve promotion prospects, and
- allocate additional resources to continue implementing the Special Retired and Rehire Scheme
The Government will earmark HK$5 billion to the HA for it to upgrade and acquire medical equipment.
The Government will establish a HK$10 billion public healthcare stabilisation fund to better enable the HA to manage any additional expenditure in case of unexpected circumstances.
The Government will allocate about HK$1.2 billion to establish the Hong Kong Genome Institute, under which 40,000 to 50,000 whole genome sequencing will be performed in the next six years.
To enhance teenagers' mental health and stress resilience, the Government will place two school social workers for each school in more than 460 secondary schools in Hong Kong from the 2019/20 school year. This will increase annual recurrent expenditure of around HK$310 million.
The Financial Secretary will transfer the Tax Policy Unit, currently under the Financial Services and the Treasury Bureau, to come directly under the Financial Secretary's Office, and provide additional resources as and when necessary.
The Government will provide HK$150 million to support the development and initial operation of cross-boundary platform for the provision of online arbitration and mediation, as well as smart contract and related services.
The Government will allocate HK$353 million to enable the Hong Kong Tourism Board to step up promotion of Hong Kong's image as a premier tourism destination, enhance publicity of Hong Kong's major festivals and events, etc.
The Government will inject another HK$1 billion into the Film Development Fund in 2019-20 to help the local film industry.
The Government will raise the production budget limit of the Film Production Financing Scheme to HK$60 million and the maximum subsidy for each film to HK$9 million.
The Government will allocate HK$200 million to expand the apprenticeship scheme for the construction industry to cover more trades with labour shortage, and increase the allowances for new trainees pursuing one-year full time programs to encourage and attract in-service workers to pursue continuing education.
The Government will earmark HK$300 million to expedite the development of digital infrastructure, with a view to facilitating the dissemination, utilisation and innovative application of geospatial data.
The Government will provide the Leisure and Cultural Services Department an additional HK$176 million for Hong Kong to host large-scale world-class performing arts programs and arranging telecasts of selected mega shows in different places across the territory in the coming five years.
The Government will allocate HK$120 million to extend the public EV charging networks at government car parks.
The Government has earmarked a further HK $6 billion for developing new harbour-front promenades and open space as well as improving harbour-front facilities. The plan is to extend the length of the harbour-front promenades from the current 20-odd kilometres to 34 kilometres in about 10 years.
The Government proposes to set up a HK$200 million Urban Forestry Support Fund to, for example, encourage students to pursue studies in arboriculture, and for rolling out arboriculture and horticulture trainee programs.
The Government will allocate HK$156 million from 2019-20 onwards to increase the level of subsidy for services provided by child care centres, improving the staffing ratio of qualified child care workers in day and residential child care centres and enhance training to improve service quality.
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