2025/26 fiscal deficit to fall to $200m: PwC

Hong Kong's 2025/26 fiscal deficit will slump to HK$200 million as it is expected to receive HK$100 billion in stamp duties from the stock market, according to PwC projections.

Although the government is expected to record an operating surplus for the year, higher capital works expenditure and lower land sales are estimated to result in a capital account deficit – which is expected to narrow substantially from the HK$80.3 billion seen in the 2024/25 fiscal year – the audit firm said. This will result in fiscal reserves of HK$654.1 billion in March, equivalent to approximately 10 months of government expenditure, marking the lowest level of fiscal reserves by the government, PwC said. 

Revenue from land sales will be approximately HK$13 billion, which is 38 percent lower than the government's original estimate of HK$21 billion, it said, adding that revenues from profits tax and salaries tax will stand at HK$282 billion – down 5 percent from the original projection of HK$297 billion.

However, stamp duty is expected to generate HK$100 billion – around 48 percent higher than the budget estimate of HK$67.6 billion, the accounting firm said.

PwC Hong Kong tax controversy services leader Kenneth Wong recommends enhancing the existing research and development tax incentives to drive technological advances, particularly in respect of payments for outsourced R&D activities undertaken in the Greater Bay Area. A 150 percent enhanced tax deduction for enterprises investing in AI technologies can be transformative, encouraging innovation and digital transformation, he said.

Meanwhile, a representative body of Hong Kong’s securities and futures industry has called for sweeping market reforms, including cuts to stock trading taxes and measures to boost liquidity, as it submitted policy recommendations ahead of the city’s 2026/27 budget. Hong Kong Securities & Futures Professionals Association suggested that Hong Kong should further cut the stock stamp duty by half to 0.05 percent for both the buyer and seller, resulting in a total stamp duty of 0.1 percent per transaction, bringing it in line with China’s A-share market.