Hong Kong’s embattled government on Wednesday offered cash handouts, tax breaks and a raft of subsidies in a HK$120 billion (US$15.4 billion) package aimed at easing the financial burden on citizens and injecting new life into an economy ravaged by months of social unrest and now a spreading coronavirus crisis.
Unveiling the most difficult and politically charged spending blueprint of his career, Financial Secretary Paul Chan Mo-po announced an eye-catching, one-off payment of HK$10,000 to around 7 million adult permanent residents, as well as a much-needed lifeline to small and medium-sized enterprises.
Chan also reported the city’s first budget deficit in 15 years, of HK$37.8 billion, forecast to surge to a record HK$139.1 billion in the 2020/21 fiscal year.
“Although a record-high deficit is envisaged in next year’s budget, I believe that only with such a budget can we help our community and local enterprises ride out their difficulties,” Chan said in a 90-minute speech to the legislature, with the focus on the themes of “supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden”.
While the city’s fiscal reserves would stand at about HK$1.13 trillion by the end of March, Chan forecast, they could shrink to HK$937.1 billion by March 2025.
But the official position was that it was too early to say Hong Kong was entering a structural fiscal deficit cycle, as the economy could recover from the impact of the coronavirus when the public health emergency eventually ended.
Chan raised some eyebrows with a seemingly bold prediction to that extent when he was asked at a media briefing later if he was planning to distribute the cash handouts in the coming summer months to help the government’s political allies win votes in September’s Legislative Council elections.
“We want to do it in the summer because the outbreak will be over,” he said. “Experts have said that the epidemic will be short, and when the weather gets hotter, the coronavirus will be dead or its spreading will slow down.”
Chan added later that, on a practical note, it would take until summer for the government and banks to align their systems for the distribution of the money.
Chan forecast economic growth of minus 1.5 per cent to 0.5 per cent this year, following a contraction of 1.2 per cent in 2019. The budget deficit for the coming fiscal year would account for 4.8 per cent of gross domestic product.
The new figures were a far cry from the HK$16.8 billion surplus and 2-3 per cent GDP growth he forecast in last year’s budget.
“Although the deficit will hit an all-time high, a close look at its components shows that most of the deficit is related to the cash payout scheme and other one-off relief measures, which will not incur long-term financial commitments,” Chan said.
The cash handouts, expected to benefit 7 million people at a total cost of HK$71 billion, marked a turnaround under intense political and public pressure after Chan, over the past weeks, repeatedly played down the possibility of giving out money.
Chan offered immediate relief to the middle class this year in the form of HK$32.1 billion worth of property rates and tax concessions. Salaries tax for 2019/20 would be waived for some 1.95 million people, subject to a ceiling of HK$20,000, he said.
Smaller businesses struggling to cope with the impact of the outbreak on top of the beating they took over the past months of often-violent anti-government protests could now apply for low-interest loans of up to HK$2 million each, repayable over three years, under a HK$20 billion scheme.
Profit tax for 2019/20 would also be waived, capped at HK$20,000, to benefit 141,000 taxpayers at a cost of HK$2 billion, Chan announced. And HK$6.4 billion would be spent on waiving rates for commercial properties, as well as help for businesses to pay electricity, water and sewage charges.
For the underprivileged, the budget promised welfare recipients an extra month of social security allowances and a month’s rent for lower-income tenants in public housing.
Students would be able to take the Hong Kong Diploma of Secondary Education exams next year for free, he added.
Chan also promised more help for the city’s devastated tourism sector, a pillar of the economy.
With more than 90 confirmed cases of Covid-19 so far in the city, Chan devoted a substantial part of his budget speech to the issue, amid widespread criticism that Hong Kong was ill-prepared to tackle the crisis that started in mainland China and continues to spread around the world.
“We should plan ahead to enhance the capability of our health care system in preventing and treating infectious diseases, such as building additional medical and quarantine facilities, increasing our stock of medical supplies as well as strengthening scientific research on infectious disease prevention and control, pathology and medication,” he said.
Chan noted that the double whammy of the social unrest and the coronavirus epidemic had affected the mental health of many, and promised resources to help them.
He ended his speech by highlighting the choice of an earth tone for the colour of the booklet cover to project Hong Kong as “still a fertile piece of land”.
“The quality of its crops, however, depends on the seeds we sow and the way we cultivate and irrigate it,” he said.
“Living on the same land, we are closely connected, sharing joys and sorrows. Hong Kong may have all sorts of shortcomings, but it is our home which allows diversity and freedom of development. Even if we have been disappointed, we can choose to feel hopeful for our future.”
Rule No. 1: Never lose money; rule No. 2: Don’t forget rule No. 1.