Deficits to saddle HK in next five years
Economic growth will rebound in 2021, but fiscal deficits will continue in the next five years. With tightened purse strings, the government will freeze its 6,082 headcount and reduce expenditure by 1 percent. Paul Chan projected that the economy will grow by 3.5 to 5.5 percent in real...
Thursday, February 25, 2021
Economic growth will rebound in 2021, but fiscal deficits will continue in the next five years.
With tightened purse strings, the government will freeze its 6,082 headcount and reduce expenditure by 1 percent.
Paul Chan projected that the economy will grow by 3.5 to 5.5 percent in real terms this year, after contracting 6.1 percent in 2020.
While the progress of recovery will hinge on the pandemic, Chan is confident growth in China will drive Hong Kong's economy.
"In Europe and the US, if the pandemic is under control when the vaccination program is widely adopted by their citizens, it seems to be quite possible that in the overseas economy, recovery will be quite strong from the middle of this year," he said.
Cross-boundary movement of people and tourism activities will take time to return to normal, Chan said, as the economy still faces significant challenges in the first half.
Recovery will likely gain a stronger momentum in the second half in tandem with an expected rebound in the global economy, with the International Monetary Fund estimating global growth to be 5.5 percent.
He forecast Hong Kong's real GDP will grow by an average of 3.3 percent per annum from 2022 to 2025, while the underlying inflation rate will average 2 percent.
Nevertheless, the government's finances will not recover so soon, with a deficit to be expected "for a number of years" after achieving a surplus for 15 years.
Chan projected the fiscal deficit will be HK$101.6 billion in the next fiscal year, accounting for 3.6 percent of GDP, due to the counter-cyclical fiscal measures and the continued increase in recurrent expenditures.
The government's operating account will be in a shortfall in the next five fiscal years, ranging from HK$22.4 billion to HK$140 billion, not including any further tax rebate or relief measures which may be introduced.
Chan said there will be zero growth in the civil service establishment in 2021-22. All policy bureaus and departments will be required to reduce expenditure without affecting livelihood-related spending, with the aim of cutting recurrent expenditure by 1 percent in 2022-23, or HK$3.9 billion.
He admitted it is not the time to introduce new taxes.
Authorities will research into new sources of revenue. One target is the rating system that has not undergone any major change since 1995.
The Financial Services and Treasury Bureau and the Rating and Valuation Department have been asked to review the case for introducing a progressive element to the system and for providing rates concession to owner-occupied properties on a regular basis.
"Furthermore, we will consider shifting the primary liability for rates payment from the occupier to the owner of a property to reflect that the ultimate responsibility with regard to a property should rest with its owner," he said.
The government will consult the Legislative Council on whether and how to revise the rating system.