Press releases
The 2023-24 Budget: A sustainable, balanced budget charting a new course for Hong Kong's post-pandemic economy
Published date: 22 February 2023
Today, Financial Secretary Paul Chan delivered the 2023-24 Budget, emphasizing high-quality economic development in the post-pandemic era and transitioning to moderately loose fiscal policies with a clear focus on investing in traditional industries and emerging strategic sectors. Attracting enterprises and talent remains high on the agenda, with sustainability objectives and a commitment to developing the digital economy and innovation and technology (I&T) ecosystem also standing out as priorities.
Deloitte China Southern Region Managing Partner Edward Au says, "In contrast to the previous two budgets, the government's clear priority is boosting economic development first and foremost and investment in key focus areas to accelerate its agenda of building a more diversified economy and propel a rapid, full-scale recovery. With Hong Kong back in business, today's announcement comes at an opportune time to enhance the investment environment, attract enterprises and talent, and accelerate economic growth by providing policy focus and ensuring financial stability."
"We welcome the government's reaffirmation it will sharpen Hong Kong's unique strengths as an international financial center through new programs to deepen connectivity with the Chinese mainland, including capital market access, green financing, and RMB internationalization, which will consolidate Hong Kong's 'super-connector' status. National development strategies such as the Greater Bay Area (GBA) will continue to present high-quality growth opportunities to realize Hong Kong's 'eight centers' positioning under the 14th Five-Year Plan." Au adds.
For FY2022-23, Hong Kong recorded its second-highest fiscal deficit in history of HKD139.8 billion, behind only the HKD232.5 billion shortfall in FY2020-21. Turning from a surplus of HKD29.4 billion for FY2021-22, this weak fiscal outcome was mainly due to softer stock and property markets, reduced revenue from tax and land premiums, and increased expenditure on anti-epidemic efforts and relief. This will cause a sharp drop in fiscal reserves to HKD817.3 billion by the end of March 2023.
Deloitte China Southern Region Tax & Business Advisory Services Deputy Leader Raymond Tang says, "Despite the huge deficit, the outlook for Hong Kong's economy remains positive this year, with the resumption of business activities, slowing interest rate hikes, and easing inflationary pressure set to provide tailwinds to global economic recovery. A new round of the consumption vouchers will continue to stimulate domestic consumption, while tax relief is welcome to ease the burdens of individuals and enterprises in this critical period as Hong Kong bounces back from the pandemic."
"On tax policy, this budget suggests exploring a new 'patent box' tax incentive for intellectual property and enhancing current tax incentives for aircraft leasing, funds, and carried interest. We welcome these measures as they will encourage the development of key industries," says Deloitte China Tax Partner Polly Wan.
"We are glad the Financial Secretary has adopted many of Deloitte's proposals, including on consumption vouchers, allowing deductions of spectrum utilization fees for the telecommunication industry, and a re-domiciliation mechanism. We look forward to more measures in other areas, such as developing Hong Kong as the preferred destination for regional headquarters and further enhancing the capital market," Wan adds.
Prioritizing the digital economy, re-industrialization, R&D, and talent to stimulate I&T growth
Echoing the Hong Kong Innovation and Technology (I&T) Development Blueprint published last December, this year's budget reinforces the government's ambitions to pool the efforts of government, industry, academic and research sectors, and consolidate Hong Kong's position as an I&T center through key priorities: the digital economy, re-industrialization, R&D investment, and talent.
With newly announced measures including a cross-sector virtual asset task force to capture Web3 opportunities and the AI supercomputing center under consideration, the increased adoption of emerging technologies in different industries will expedite Hong Kong's transition to a digital economy.
Deloitte welcomes the government's plan to establish a coordination office to accelerate development of the Northern Metropolis, which can be an ideal platform for re-industrialization and collaborative R&D in local and GBA I&T. Investment plans for healthtech, AI, and quantum technology will ensure Hong Kong's world-leading R&D innovations become commercially viable.
With Hong Kong's strong local I&T talent pool in microelectronics and new energy, the proposed Microelectronics R&D Institute would enhance collaboration, knowledge exchange, and talent development between regional universities, research institutions, and technology companies.
Advancing the Northern Metropolis and smart city development
Deloitte recommends adopting bold, innovative measures to realize the Northern Metropolis' vision as a futuristic "15-minute city" with "refined urban services". Specific recommendations include the adoption of innovative public-private partnership models such as transit-oriented development, releasing flat land near the boundary for use, and encouraging the development of inclusive communities driven by I&T growth.
We welcome the government's plan to further invest in smart city and digital economy, earmarking HKD200 million to enhance the operation of the "iAM Smart" platform to provide more convenient one-stop digital services and further promote "Smart Government" and the digital transformation of society to improve people's quality of life.
Furthermore, we recommend that the government further streamline and expedite internal processes, bring in market competition, and unleash market potential to drive quality and efficient development.
Catalyzing new growth in financial services
This year's budget features important initiatives that will sustain the recovery of financing in Hong Kong for purchases of personal and commercial assets. Measures that support enterprises and the public and promote Hong Kong as a global hub for different sectors will aid the recovery of lending by Hong Kong banks to private and corporate borrowers and accelerate economic recovery. These measures will be accompanied by strategies to promote the maritime services industry including enhanced ship finance, marine insurance, maritime arbitration, and ship management sectors.
The government earmarking a proportion of future issuance of green and infrastructure bonds for priority investment by Mandatory Provident Fund (MPF) schemes is a welcome initiative to channel Hong Kong pension savings towards infrastructure investment.
Investment incentives key to green transition
Hong Kong has taken steps to promote the city as a center for green finance, but more direct policy measures are needed to chart a timely course to achieving climate targets and make essential adaptations to protect the city from climate extremes.
When he took office, Chief Executive John Lee reaffirmed Hong Kong would "strive to achieve carbon neutrality before 2050." Financial policy must accelerate decarbonization in the key sectors of power generation, construction, and transport to set Hong Kong on a smooth trajectory towards that target. This should include incentives for private sector investment and blended finance, financial disincentives for laggards, and a just transition approach that leaves no part of the community behind.
Hong Kong must move from pilot schemes and voluntary initiatives towards game-changing policies on green transport, building efficiency, and renewable energy. The move to a carbon neutral future is a huge investment and technology opportunity for business and finance in Hong Kong and beyond. Delayed action will mean more pain later and fewer opportunities to compete in regional transformation.
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