Hong Kong’s government should tap its ample fiscal reserves to stimulate an economy mired in recession, including offering its citizens HK$10,000 ($1,287) handouts in the form of spending vouchers, accounting firm KPMG LLP said.
The city is expected to record a consolidated budget deficit of HK$47.7 billion for the 2019-2020 fiscal year -- its first shortfall in 15 years -- resulting from rising stimulus spending and recurring costs as well as reduced revenue, KPMG said in a press release Tuesday.
The government should take bold action when it releases its budget Feb. 26, KPMG said.
“The Hong Kong government should avoid the temptation to increase taxes or cut expenditures at a time when the city should in fact protect and even step up its domestic support programs,” said John Timpany, partner and head of tax in Hong Kong at KPMG China.
Hong Kong faces “tsunami-like” shocks and may post a record budget deficit in the next fiscal year, Financial Secretary Paul Chan said in a blog post Sunday. The city faces pressures from the coronavirus
outbreak after months of political unrest pushed the economy into recession last year.
Chan downplayed the prospect of direct cash payments, while promising bold spending, in a Jan. 9 interview with Bloomberg, before the coronavirus
outbreak spread. Depending on the size of the cash handout, it could push the budget deficit higher than HK$100 billion, Chan said in the interview.
KPMG proposed a series of short and long-term spending measures, including:
Giving out HK$10,000 electronic consumption vouchers to permanent residents age 18 and older to promote spending at local businesses.
Tax relief measures for local businesses such as deferred payments and partial waivers of provisional tax.
Extending rent subsidies for Hong Kong Science Park, Cyberport and other public institutions for six to 12 months.
Support to working parents as well as allowance on rental expenses for residences.
Boost Hong Kong’s long-term competitiveness by adopting bolder tax incentives and lower rates to attract overseas business.
Hong Kong’s fiscal reserve stood at about HK$1.12 trillion on Dec. 31, according to a government announcement.
The city is in a much healthier financial position to spend on immediate measures to stimulate the economy compared with 2003 amid the SARS crisis, when reserves were as low as about HK$275 billion, KPMG said.
“The reserves are meant to prepare Hong Kong for rainy days, and we should use it timely and wisely to weather the storm we are in now,” said Alice Leung, a partner for corporate tax advisory at KPMG China.