The Hong Kong Government has unveiled a budget for 2020-2021 that is focused on supporting businesses and the wider community counter the negative impacts of the coronavirus outbreak, as well as developing a diversified economy, nurturing talent and building a liveable city.
Overcoming current challenges
In announcing the budget, Financial Secretary Paul Chan Mo-po said the focus will be on “supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden”. The budget allocates HK$120 billion to a raft of measures to help Hong Kong weather the current economic downturn, including additional support for small businesses and cash payouts to permanent residents.
Top of the measures to stimulate the economy is a HK$10,000 cash payout to all Hong Kong permanent residents aged 18 or above. This is expected to benefit about seven million people and will cost about HK$71 billion.
“We welcome the government’s HK$10,000 cash payout scheme as a response to the economic downturn. This is a large stimulus measure that will deliver a timely boost to the economy and reduce the financial pressures many households are facing. However, the economic impact could be greater if the money was given as a limited-life coupon to be only redeemed in Hong Kong, and in businesses within sectors most in need of assistance, including retail and hospitality,” says Anthony Lau FCPA, president of CPA Australia Greater China 2020.
In addition to the cash payout, individuals will receive a 100 per cent reduction in salaries tax and tax under personal assessment for 2019-2020, subject to a ceiling of HK$20,000.
To support enterprises and safeguard jobs, the government will introduce a concessionary low-interest loan with a 100 per cent government guarantee for enterprises, which would be open for application for six months. The maximum loan amount for eligible enterprises is HK$2 million, with a repayment period of up to three years and a principal moratorium on repayment for the first six months.
Profits tax for the year of assessment 2019-2020 will be reduced by 100 per cent, subject to a ceiling of HK$20,000. This is expected to benefit about 141,000 businesses.
The government will also provide HK$2.5 billion to the Employees Retraining Board to enhance the Love Upgrading Special Scheme in order to provide training and an allowance for employees affected by the economic downturn. The maximum monthly allowance for each eligible trainee will be increased from HK$4000 to HK$5800.
The government also announced that it will waive rates for non-domestic properties for 2020-2021, waive the business registration fees for 2020-2021, and waive the registration fees for company annual returns for two years.
“We also welcome measures announced in this budget to further support small and medium-sized enterprises (SMEs) through the current economic challenges. The government should, however, stand ready to do more if poor economic conditions persist longer than expected. That assistance could include expanding the SME Financing Guarantee Scheme to provide cash subsidies to eligible businesses, and providing assistance to small employers to make their Mandatory Provident Fund contributions,” Lau adds.
Other support for overcoming the current economic conditions includes:
- recipients of Comprehensive Social Security Assistance payments, the Old Age Allowance, Old Age Living Allowance or Disability Allowance to receive an extra one-month allowance
- the government to pay one month’s rent for lower income tenants living in public rental units
- the government to pay the examination fees for candidates sitting the 2021 Hong Kong Diploma of Secondary Education examination
- the government to allocate an additional funding of about HK$600 million to the Hospital Authority for increasing manpower to implement new measures and enhance existing services
Strengthening Hong Kong’s pillar industries
To strengthen the competitiveness of Hong Kong’s pillar industries – namely financial services, tourism, trade and logistics, and professional services – the government announced the following measures in the budget:
- waiving the stamp duty on stock transfers paid by exchange-traded fund (ETF) market makers when creating and redeeming ETF units in Hong Kong
- issuing green bonds totalling HK$66 billion within the next five years to further consolidate and develop Hong Kong’s position as a premier green financing hub in the region
- issuing inflation-linked retail bonds and Silver Bonds totalling not less than HK$13 billion
- providing tax concessions for carried interest issued by private equity funds operating in Hong Kong
- allocating over HK$700 million for the Hong Kong Tourism Board to step up its promotional activities to help revive the tourism industry
- allocating HK$150 million to the Hong Kong Trade Development Council (HKTDC) for organising various initiatives to promote Hong Kong and to assist local enterprises in exploring business opportunities
- promoting the development of the professional services industry in the Greater Bay Area under the “early and pilot implementation” approach
“We support the budget announcement on the government’s plan to provide further tax concession to the private equity industry in Hong Kong. CPA Australia believes that details of this tax concession should be published as early as possible, and that the government should actively consult with stakeholders and professionals when developing and implementing the tax concession,” Lau adds.
Developing innovation and technology
“Innovation and technology is an important growth engine for future economic development,” Chan stated in his Budget speech.
To promote re-industrialisation, the government announced that it will inject a further HK$2 billion into its Innovation and Technology Fund for launching the Re-industrialisation Funding Scheme to provide financial support for manufacturers on a matching basis for setting up new smart production lines in Hong Kong.
To promote the wider use of technological services and solutions among Hong Kong enterprises, the government will enhance the Technology Voucher Programme by increasing the grant ceiling from HK$400,000 to HK$600,000 and raising the government’s funding ratio from two-thirds to three-fourths.
To provide young people with more opportunities, the Financial Secretary announced that the government will earmark HK$40 million to subsidise short-term internships for undergraduates and postgraduates taking STEM programmes in local universities, and increase short-term internship places for 2020-2021 to about 5000.
Protecting the environment
“Climate change has brought about global environmental challenges, with extreme weather phenomena increasing in frequency and intensity. Hong Kong has been working towards the goal of the Paris Agreement,” Chan said.
To promote the development of decarbonisation and green technologies, the government will set up a HK$200 million Green Tech Fund to support research and development, and application of decarbonisation and green technologies.
Other measures unveiled in the budget to help protect the environment include:
- formulating Hong Kong’s first roadmap on the use of electric vehicles
- allocating HK$80 million to launch a pilot scheme for electric public light buses
- earmarking HK$350 million to launch a pilot scheme for electric ferries
Snapshot of the Hong Kong budget position
For the fiscal year 2019-2020, the expected budget deficit is HK$37.8 billion or 1.3 per cent of GDP. This is the first time Hong Kong will run a fiscal deficit in 15 years. The government also forecasts that it will run a deficit for each of the next five years, with the fiscal deficit for 2020-2021 forecast to be HK$139.1 billion or 4.8 per cent of GDP.
The estimated deficit in 2020-2021 is mainly due to the expenditure arising from the one-off relief measures announced in this budget and some of the relief announced last year.
Fiscal reserves are expected to be HK$1.13 trillion by 31 March 2020.
Chan forecast Hong Kong’s economy to grow by -1.5 per cent to 0.5 per cent in 2020, and to grow by an average of 2.8 per cent per annum from 2021 to 2024.
“Although the government is forecasting deficits for the next five years, CPA Australia believes that as the government possesses a large fiscal reserve of HK$1.13 trillion, these deficits are sustainable and Hong Kong’s financial position remains very strong. While the fiscal deficit for next year is expected to be HK$139.1 billion, if the cash payout scheme and the other one-off relief measures are not taken into account, the fiscal deficit would be about HK$59 billion.
“Besides, as Hong Kong faces the challenges of an ageing population and a changing global tax environment, CPA Australia recommends the government conducts a comprehensive tax reform review for the city’s long-term development,” Lau says.
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