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The 2022-23 Budget: Balanced, forward-looking proposals to secure Hong Kong's sustainable growth through economic diversification

Published: 23 February 2022

Today, Financial Secretary Paul Chan presented the 2022-23 Budget, pledging more than HKD54 billion to  support the anti-epidemic work for Hong Kong businesses and individuals as the city grapples with its fifth and biggest wave of COVID-19. 

Although extensions of the Cash Payout Scheme, SME Financing Guarantee Scheme and relaxation of the Mortgage Insurance Program are welcome moves to provide much-needed immediate relief to citizens and enterprises, continued substantial investment in key and emerging sectors including innovation & technology (I&T) is needed to secure Hong Kong’s economy against downside risks. Beyond short-term relief measures, Hong Kong needs to embrace a bold but practical approach that strikes a balance between investing for the future and adhering to its long-held principle of fiscal prudence. 

"This year's budget demonstrates the government's resolve to provide timely and enhanced anti-epidemic measures that are crucial to supporting our community and hard-hit industries," says Deloitte China Southern Region Managing Partner Edward Au. "Despite mounting headwinds from uncertainty around the ongoing outbreak, our underlying economic fundamentals remain sound. Building on Hong Kong's strengths, we must continue to push for economic diversification and seize growth opportunities arising from the Greater Bay Area (GBA)."

With this final budget of the current-term government, it offers forward-looking recommendations to enhance Hong Kong’s medium and long-term economic resilience, including proposals to facilitate further integration into national development. 

"GBA development has always been critical to Hong Kong's future success. Putting an emphasis on deepening connectivity with the mainland, especially through programs to strengthen mutual security, bond market access, and green financing, will sharpen Hong Kong's competitive edge as a leading financial center. We also welcome the government's plan to continuously review our listing regime, with a view to boosting the I&T ecosystem by diversifying listing options and attracting large-scale advanced technology enterprises to list in the city," adds Au.

A surplus of HKD18.9 billion is projected for 2021-22 – against the original forecast of a HKD101.6 billion deficit – due to better-than-expected revenue from profits tax and land sales, coupled with falling expenditure. Fiscal reserves are expected to reach HKD946.7 billion by the end of March 2022. 

Deloitte China Southern Region Tax & Business Advisory Services Deputy Leader Raymond Tang says, "Hong Kong's public finances continue to be on a solid footing with a very robust reserve. Echoing the Financial Secretary, we are optimistic about the city's economic outlook and expect government revenue and spending to stay on a steady trajectory once immediate COVID-19 economic challenges begin to abate."

The Financial Secretary’s latest estimate is that Hong Kong will record a deficit of HKD56.3 billion for 2022-23, taking into account the over HKD54 billion in one-off spending earmarked for anti-epidemic measures. "To ensure the long-term health of its financial position, it is important that the government support sustainable development of our traditional industries and take further steps to promote growth areas, especially I&T and the digital economy," adds Tang.

Deloitte welcomes the government's determination to invest heavily in I&T, which will be pivotal to catalyzing new economic growth and raising the city's competitiveness to capture opportunities in the digital era. The new Digital Economy Development Committee of cross-industry professionals can be instrumental in devising practical measures to accelerate digitization across the whole economy and individual segments. To this end, Deloitte recommends that particular consideration is given to integrating the local I&T and digital ecosystems in the context of the GBA through tax incentives. 

To boost further development of Hong Kong's financial services industry, this year's budget puts forward a new tax concession for family investment management entities managed by single-family offices in Hong Kong. Deloitte China Tax Partner Polly Wan says, "This is an exciting development for the whole asset management industry and will open up new business opportunities for the financial and professional services sectors."

"Equally important is for the government to track the latest developments in the international tax landscape, including BEPS 2.0, to preserve the advantages of our simple tax system, which is one of our city's unique competitive advantages. Overall, we believe this is a balanced, forward-thinking budget, encompassing a mix of short-term and long-term strategies, setting us on a right course toward sustainable development through economic diversification," concludes Wan.

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