Hong Kong budget to help reboot economy
Rise of the new economy across Greater Bay Area can refresh Hong Kong's competitive advantage
Published: 24 February 2021
Financial Secretary Paul Chan Mo-Po presented his 5th Hong Kong budget speech this morning against the backdrop of a second year of economic contraction, this time due to COVID-19, announcing an expected budget deficit of HKD257.6 billion for 2020/21 and anticipated fiscal reserves of HKD902.7 billion by 31 March 2021.
With the unemployment rate continuing to rise and an uncertain economic outlook due to COVID-19, the Government has been working continuously to enhance Hong Kong's competitiveness as an international financial hub by ensuring its regulatory framework keeps pace with the new economy, in areas such as technology, innovation, biotech and systemic risk management. The budget speech also suggests Hong Kong is set for a reboot within the innovation and technology (I&T) space, with the injection of HKD9.5 billion into an I&T fund to attract more young talent, as it welcomes the rise of the new economy within the Greater Bay Area (GBA).
"Advancing the development of Hong Kong-Shenzhen Innovation and Technology Park, as part of the Government's wider support for GBA development, could further enhance the local innovation ecosystem, and increase the GBA's appeal to entrepreneurs and people to work cross-border. Hong Kong, as a renowned international financial hub, plays a pivotal role in green and sustainable finance within the GBA, which will create job opportunities for Hong Kong people, especially young talent who are keen to expand their horizons across different industries. As a firm, it is vital that we upskill our young talent for future professional growth. We are committed to continuing to support the career development of Hong Kong youth and their prospects within the GBA," says Deloitte China Southern Region Managing Partner Edward Au.
Addressing GBA development, Deloitte China Tax Partner Sarah Chan urges the government to map out the details of tax incentives for key industries, including finance, insurance, technology and biotech, as it seeks to stimulate the local market and pave the way for Hong Kong's economic recovery. The government should ensure Hong Kong remains one of world's foremost international financial centers and plays a crucial role in the development of the GBA by attracting companies to settle and raise capital in Hong Kong, which can provide a long-term solution to unemployment.
"These tax incentives, along with Hong Kong's superior business environment for technology, innovation and entrepreneurship, will attract more job opportunities and start-ups to establish themselves in Hong Kong" says Chan.
The government’s fiscal reserves are expected to be HKD902.7 billion by 31 March 2021, and the unemployment rate has reached 7%. With this in mind, the Financial Secretary announced various relief measures and funding to support businesses and initiatives to improve people's livelihoods. However, questions remains over whether such "sweeteners" will be enough to revive the economy.
"We applaud the Government for its efforts to provide relief measures for business sectors that are in need. Nevertheless, in the long run, the Government should re-think how it can best make use of Hong Kong's fiscal reserves, and enhance the tax system to broaden the tax base and revive Hong Kong's economy. The announced increase in stamp duty on stock transfers to 0.13% from 0.1% will improve government revenue to a certain extent," says Deloitte China Tax Director Alfred Chan.
In this year's Budget, the Financial Secretary also said tax arrangements related to family office business will be reviewed with the aim of enhancing Hong Kong's attractiveness as a family office hub.
"We welcome the moves to further develop Hong Kong as a hub for family offices, as asset and wealth management for high net worth families have become increasingly important to Hong Kong's financial services industry and ecosystem, as well as within the GBA and the other major financial centers of Asia. Providing tax incentives will attract more high net worth families to establish presences in Hong Kong, especially those from the mainland," says Deloitte China Tax Director Roy Phan.