According to Bloomberg on September 18, Hong Kong forecasted a financial deficit of almost twice the amount projected. The economic downturn further declines revenue and the COVID pandemic increases government expenditure.
Financial Secretary Paul Chan wrote in his blog, “Amid the economic slump, the government’s revenue is not going to meet its expectation while its spending is going up. The financial situation of this year could be worse than expected under such circumstances.”
The city may record a budget deficit exceeding $12.7 billion (HK$100 billion) for this financial year, accelerating from the $7.17 billion (HK$56.3 billion) projected earlier this year.
The financial secretary noted that this deficit would be the second-biggest after a record shortfall of $29.62 billion (HK$232.5 billion) in 2020. Moreover, he warned that the government’s fiscal reserves could also further tumble to around $102 billion ($HK 800 billion).
Chan also said that the financial deficit would likely become worse if the sale of $4.46 billion (HK$35 billion) of government’s green bonds issued this year were not taken into account.
He believes that profit and salaries tax revenue will be lower than the earlier estimation due to lower exports, weaker private consumption and investment.
He added both small and medium-sized enterprises are suffering greatly from the impact of the COVID pandemic.
SCMP reported that all revenues from taxes, stamp duties, and land sales plummeted, indicating that the pandemic and central banks’ tighter monetary policies had already hit the economy and impacted the city’s growth.
Chan said he expected stamp duty revenue to be a third less than estimated this financial year. This was due to home sales falling by 37% in the first four months, while stock market deals tumbling by 26% between April and August from a year ago.
In addition, land sales only generated $2.2 billion (HK$17.2 billion) in income for the government in the first five months, which is far below the estimated revenue of $15.3 billion (HK$120 billion) this fiscal year.
The financial secretary wrote, “Based on past experiences, when there is a drop in property prices, the adjustment in land prices will be even bigger.”
However, he added, “Amid a weak economy, the market demand for commercial land will drop. Developers will also be less motivated to negotiate over land premium. All these factors will affect our land revenue.”
In terms of government spending, Chan noted that the city has recently implemented an employment support measure of $5.48 billion (HK$43 billion) and a sixth round of anti-epidemic funds to assist companies.
The estimated budget in February did not take into account both of these which had also boosted government expenditure and exacerbated the deficit.
Chan thinks that in the short and medium term, Hong Kong would prioritize its low-income citizens and enhance people’s livelihoods while striving to maintain healthy and stable public finances.
The financial secretary also said that the city’s unemployment rate dropped 5.4% in the February-to-April period to 4.3% from May to July and should decline further when the latest jobless data is released this week.Additionally, in the second phase of consumer coupons to be issued from October 1, Hong Kong will inject more than $1.9 billion (HK$15 billion) into the consumer market. /