How Can Hong Kong Address Its Growing Budget Deficit?

A consolidated budget deficit of $94.8 billion is projected for 2025, prompting calls for strategic measures to guide the government’s upcoming budget planning.

Leveraging the Greater Bay Area (GBA)

Experts emphasize leveraging Hong Kong’s strategic location within the Greater Bay Area to maintain its role as a critical connector between mainland China and the world. Fostering innovation and retaining talent are essential steps to support future economic growth.

Attracting and Retaining International Talent

Creating a welcoming environment for international talent is key. Recommendations include:

Establishing a one-stop facilitation service to streamline visa applications.

Aligning talent with suitable job opportunities.

Providing educational services for expatriate families.

Tax Enhancements

Several tax-related measures have been proposed to address the budget deficit while fostering economic activity:

Unilateral Tax Relief: Providing relief for individuals in tax treaty jurisdictions.

Workforce Upskilling: Offering tax deductions for employers investing in upskilling and reskilling their employees to meet evolving business demands.

Family Offices: Broadening tax concessions to include fine arts and collectibles, aligning qualifying investment lists under different schemes, and fast-tracking residency statuses for family office principals and their families.

Commodity Trading: Introducing tax incentives to reinforce Hong Kong’s status as an international shipping hub.

Capital Markets: Enhancing preferential tax regimes for investment funds and carried interests, waiving buy-side stamp duty on stock trading, and offering tax exemptions for market intermediaries to stimulate activity and attract investors.

Supporting Innovation and R&D

To promote innovation, particularly within the GBA, the following measures have been suggested:

Relaxing intellectual property-related tax rules.

Extending enhanced tax deductions for R&D activities.

Providing grants for product development in sectors like drone manufacturing and technology.

Infrastructure Development

Engaging the private sector early in infrastructure planning and financing is critical. Recommendations include:

Developing a comprehensive five-to-10-year infrastructure plan to attract global investments.

Involving private investors to reduce fiscal strain and enhance project efficiency.

Silver Economy Initiatives

To address the challenges of an aging population, it is recommended:

Offering tax incentives to support the development of products and services tailored to senior citizens.

Aligning initiatives with the government’s silver economy strategy.

Hong Kong faces significant fiscal challenges but has opportunities to innovate and grow. By leveraging its strategic position in the GBA, fostering talent, enhancing tax policies, and engaging private investment, the government can address the budget deficit while laying the groundwork for sustainable economic growth