Hong Kong plans to run a much lower budget deficit in the coming fiscal year as it is expected for the economy to recover following the city’s vaccination program.
The city begins its vaccine rollout this week, having secured a total of 22.5 million doses of Covid-19 vaccines from Pfizer, Sinovac and AstraZeneca. It aims to have the majority of the population vaccinated for free this year.
Frequent violent protests and US-China trade tensions in 2019 had led the global financial hub into recession even before the pandemic hit.
Finance Secretary Paul Chan said he expected the budget deficit for the upcoming year to hit HK$101.6bn ($13.10bn, €10.7bn), or 3.6 per cent of GDP, smaller than the record HK$257.6bn expected for 2020/21.
Pandemic relief measures, including cash handouts to residents and tax breaks, left the city with a much deeper deficit last year than the expected HK$139.1bn.
“With the epidemic still lingering, our economy is yet to come out of recession,” Chan said in his budget speech. “This year’s budget focuses on stabilising the economy and relieving people’s burden.”
To support a recovery in consumer and business activity, spending will include HK$5,000 vouchers to residents, cuts in the profits and salaries tax, and a waiver on business registration fees.
The government also says it will launch an over HK$120bn relief package.
On the revenue side, the government will increase the stamp duty for stock trading to 0.13 per cent from 0.1 per cent.
Its fiscal reserves are expected at HK$902.7bn at the end of March 2021 and fall to HK$775.8bn by end-March 2026.
The city’s economy was expected to expand by 3.5 per cent to 5.5 per cent this year and run at an average growth rate of 3.3 per cent annually from 2022 to 2025.
GDP shrank 6.1 per cent in 2020, the worst annual performance on record since 1962, while the latest unemployment rate rose to seven per cent.