The 2024-25 Budget: Well-rounded, forward-looking proposals to revive economic vitality

Hong Kong Special Administrative Region Financial Secretary Paul Chan today delivered the 2024-25 Budget, which aims to boost economic growth and benefit the people through forward-looking policies that will promote capital markets, financial services, innovation and technology (I&T), land and infrastructure, a green future and the digital economy. This Budget aims to support Hong Kong to achieve more diversified, sustainable development.

The forecast fiscal deficit of HKD101.6 billion for FY2023-24 is slightly lower than the actual deficit of HKD122.3 billion in 2022-23 but much higher than the HKD54.4 billion deficit projected in last year's Budget, mainly due to a slowing post-pandemic economic recovery and lower tax and land premium revenues. Fiscal reserves are expected to have fallen to HKD733.2 billion by 31 March 2024.

Deloitte China Southern Region Managing Partner Edward Au says, “With the theme of “Advance with Confidence. Seize Opportunities. Strive for High-quality Development”, the Budget aims to maintain healthy public finances and achieve a balance by controlling government spending and increasing revenue, while introducing measures to revitalise the economy and continue to invest in the future. At the same time, the Budget responds to the concerns and expectations of various sectors by stimulating the property market through the withdrawal of cooling measures and assisting SMEs with more focused relief measures.”

“To boost capital market performance, we welcome the Government’s continued efforts to actively discuss with the Mainland the expansion of the scope of products to be included in connect schemes. We hope this discussion will cover the lowering of access thresholds for Mainland investors and Hong Kong and Mainland issuers under the Stock Connect, and the expansion of Southbound Stock Connect to the primary market. To expand Hong Kong's economic and trade network in the Middle East and ASEAN countries, we suggest HKEX also considers establishing promotion offices in the Middle East and Indonesia to better facilitate communication, promotion and connection with investors and potential issuers.”

“While it has exempted stamp duty on the transfer of real estate investment trust (REIT) units, we suggest the Government could also reduce the stamp duty rate by 50% for securities traded on the RMB counter for the next two years to encourage capacity expansion of HKD-RMB Dual Counter securities trading. This could attract offshore RMB inflows to Hong Kong and promote RMB internationalisation in a steady, prudent manner. In addition, to further enhance market competitiveness, we suggest re-examining the stamp duty rate on stock trading and reducing it appropriately when conditions allow.”

Restoring fiscal balance by increasing revenue and cutting expenditure

The Financial Secretary emphasises that the Government manages public expenditure prudently and should consider measures to increase revenue while reducing spending to maintain the sustainability of public finances.

To achieve this, the Budget proposes the implementation of a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25, Underpinned by the principle of “affordable users pay”, taxpayers whose net income exceeds HKD5 million and whose salaries tax or tax under personal assessment is to be charged at a standard rate, will continue to be subject to the 15% standard rate on their first HKD5 million of net income, while the portion of net income exceeding HKD5 million will be subject to a new 16% standard rate.

Deloitte China Tax Partner Polly Wan, says, “The standard rate of salaries tax or tax under personal assessment, which is applicable to high-salary employees, has not been changed since 2008-09. The two-tiered standard rates regime will enable the Government to increase revenue with minimal impact to the general public. Upon adjustment, the new tax rates will still be lower than those of other advanced economies, and we believe there will be no major impact on attracting global talent.”

“We welcome the Government’s measures to cancel all demand-side management measures for residential properties. In the current market, residential property transactions have been subdued. The cancellation of these special stamp duty measures for residential properties will help to attract overseas investors. We are also pleased to see the Government’s enhancement measures for deduction of expenses under profits tax, such as granting taxpayers a tax deduction for the reinstatement cost of leased premises. As companies carrying out retail and food and beverage businesses at leased premises have yet to recover, this measure will reduce their tax burden of their taxpayers at the right juncture to support these sectors’ recovery.”

Attracting funds through WMC 2.0 and boosting tax incentives for family offices

Deloitte China Hong Kong Banking & Capital Markets Leader Natalie Chan adds, “The launch of cross-boundary Wealth Management Connect 2.0 has increased the investor quota significantly and expanded the choice of investment products, attracting Mainland residents of the Greater Bay Area (GBA) to start or increase investment in Hong Kong and revitalising the city’s economy. However, it is necessary to further optimise the registration process, allowable product types and digitisation of cross-boundary WMC to promote connectivity in the GBA and the development of Hong Kong as an offshore RMB wealth management hub.”

The Budget proposes to further enhance the preferential tax regimes for related funds, single family offices and carried interest. In this regard, Deloitte suggests the Government could optimise existing preferential tax regimes for funds and single-family offices by repealing the 5% incidental transaction threshold and expanding the scope of qualifying assets to cover investments in artworks and digital assets.

Deloitte Private Hong Kong Leader Anthony Lau says, “We also propose providing tax incentives on fee income derived by fund management companies and single-family offices incorporated in Hong Kong, subject to certain conditions, such as halving the profits tax rate to 8.25%. In addition, to attract single-family offices and more new funds to settle under the Capital Investment Entrant Scheme, which has opened application from 1 March, we propose that the Government should allow applicants to hold the relevant investments through entities that are owned by the applicants, so that the entities can be treated as being managed by a single-family office in Hong Kong and enjoy the related profits tax exemption.”

Boosting AI-enabled I&T growth and healthcare resources

To develop Hong Kong into an international I&T centre, the enablement of artificial intelligence (AI) is an important opportunity the city cannot afford to miss.

Deloitte China Hong Kong Government & Public Sector Industry Leader Rita Chan adds, “Developing into an international I&T centre is a key opportunity for Hong Kong to diversify its industries. The Budget highlights the use of AI as one of the innovative technologies being applied in various areas such as agriculture and healthcare, recognising the wide potential of I&T to reduce labour and improve efficiency. The Budget also mentions the construction of I&T infrastructure such as the Supercomputing Centre for Artificial Intelligence, for which preparatory work is in full swing.

“In the face of declining fiscal reserves, the Government should consider public-private partnership (PPP) or a private finance initiative (PFI) in promoting the construction of I&T infrastructure. This will, on one hand, maintain the stability of public finances while continuing to promote I&T, and on the other hand will help give full play to the efficiency of the private sector, drive the growth of relevant enterprises and create local employment opportunities.

“The Budget also proposes to explore Hong Kong's role as a "super connector" in data trading. In this regard, HKEX should give full play to its strengths by first establishing Hong Kong's own international data exchange with credibility and well-established market systems and rules, and then link up with different data exchanges in the Mainland, to participate in the unified national data trading market. On this basis, we recommend that HKEX should expand into overseas markets when the time is ripe to promote data trading between the Mainland and overseas to build Hong Kong into an international data trading centre."

The Government's recurrent expenditure on healthcare has been increasing in recent years – this year's estimate is nearly HKD110 billion, or about 19% of recurrent expenditure. Based on current data, it is estimated that the proportion of elderly people in the Hong Kong population will continue to rise, with one in four adults estimated to be elderly in the next 10 years. In addition, the prevalence of lifestyle-related diseases shows signs of increasing. Both factors will sharply increase demand for local healthcare services, leading to a surging number of people waiting for services and the length of time they must wait for them, which will add further pressure on the public finances for healthcare expenditure.

Deloitte China Consulting Director Alan Lam adds, “We recommend that the Government continue to build and integrate primary healthcare services and improve the public-private partnership model, to cope with the pressure of tight public healthcare resources and increasing public expenditure. More importantly, the Government should co-ordinate resources and raise the importance of preventive treatment in the community, and guide and help the public to build healthy lives through the promotion of healthy lifestyles, which would reduce pressure on the public healthcare system in the long run."

Driving digital economy and industry-academia-research collaboration

Hong Kong has been committed to strengthening development of the digital asset industry in recent years. Following the licensing regime for virtual asset trading platforms coming into effect last year and the launch of a consultation on the regulatory regime for stablecoin issuers, the Budget also mentions that the HKMA will shortly launch a "sandbox" to test stablecoin issuance, business models, investor protection and risk management systems.

Deloitte China Hong Kong Digital Asset Leader Robert Lui says, “Deloitte welcomes the Government's determination to build Hong Kong into a global centre for digital assets and believes that it will continue to optimise the system to align with Mainland and international markets and strike a balance between supporting innovation and regulation. Stablecoins are one of the key application scenarios for digital assets in the traditional financial sector, with broad development potential in Hong Kong to facilitate the steady development of the digital asset ecosystem."

To accelerate the application of innovation and technology in academia, the Budget proposes to spend HKD6 billion to support universities to establish the Life and Health Research Institute, provide funding support to the Technology Transfer Office of the eight publicly-funded universities, and earmark HKD100 million to assist self-financing tertiary institutions to establish a consortium of universities in applied sciences and related areas. Deloitte welcomes the Government's efforts to further integrate the strengths of government, industry, academia, and research, and expects the measures to help promote knowledge transfer and the transformation of research results.

Robert Lui adds, "Deloitte has been working with local universities on various fronts to help them strengthen their ties with enterprises and investors at home and abroad and raise capital through the Hong Kong capital market. In addition, we continue to promote Hong Kong's universities to engage with Mainland and global markets in innovation education and transfer of achievements, supporting Hong Kong's development as an international hub for tertiary education."

Northern Metropolis a carrier of I&T with future infrastructure relying on industrialisation

Deloitte China Financial Advisory Partner Alvis Kong says, “As a new engine for Hong Kong’s future growth, the Northern Metropolis will help create additional GDP, job opportunities and new industries locally through industry development. Deloitte suggests the Government plans and develops the area with an “industrialisation mindset” and proposes to enhance integrated development in three dimensions.

“The first is R&D-to-commercialisation integration: the Government could build an ecosystem, with R&D upstream and commercialisation downstream, and develop facilities and infrastructure for prototype development and pilot trials at San Tin Technopole. The second is city-to-industry integration: the Government can leverage Hong Kong’s unique international environment to build a new community with full support services covering housing, healthcare and education to attract and retain top global I&T talent. The third is capital-to-infrastructure integration: the Government should work to encourage commercial organisations and capital markets to invest in and develop infrastructure and R&D facilities in the Northern Metropolis.”

Hong Kong’s public expenditure on infrastructure increased from HKD65 billion in 2016 to HKD100 billion in 2023 and is expected to grow by 20% over the next five years, amid challenges such as rising costs, bottlenecks in productivity improvement and delays in the construction cycle.

Alvis Kong adds, “Deloitte welcomes the proposals in this year’s Budget to examine the feasibility of investing in supply chains that apply efficient construction methods and to set up the Building Testing and Research Institute to promote applied research in the industry. We believe collaboration with supply chains applying efficient construction methods, especially the multi-trade integrated Mechanical, Electrical and Plumbing (MiMEP) method, in the Greater Bay Area will effectively address the issues of cost, productivity and construction cycle in Hong Kong.”

Driving economic growth and development through I&T: Seizing opportunities to attract global talent for a sustainable future

Deloitte China Southern Region TMT Leader Bong Chan says, "The Budget mentions the expected launch of the AI Supercomputing Centre and completion of the Hong Kong Microelectronics Research and Development Institute within this year. These initiatives and new measures will create numerous job opportunities in related industries, attract top-tier talent and encourage companies to set up shop at Hong Kong Science Park and InnoParks."

The Government will establish the GBA International Clinical Trial Institute in the Hetao Shenzhen-Hong Kong Science and Technology Innovation Co-operation Zone and allocate HKD200 million to support incubation and acceleration by life and health technology start-ups. These initiatives will propel the development of biotechnology and inject new opportunities into the GBA. Furthermore, the Budget introduces the New Industrialisation Acceleration Scheme (NIAS), which will provide matched-funding support of up to HKD200 million, facilitating downstream development in emerging industries.

Bong Chan adds, "The Budget earmarks HKD2 billion to support the InnoHK research clusters to establish presences in the Lok Ma Chau Loop. We have been assisting the commercialisation efforts of various research clusters and will continue to support their expansion into the Loop and the GBA, enabling them to leverage the region’s manufacturing industry chain to implement research outcomes. We also believe that the mentioned White Paper on the Development of the HSITP in the Loop will deepen Hong Kong's I&T development strategy."

"Furthermore, we are pleased to see the Government actively building a green future and extending the Green and Sustainable Finance Grant Scheme to 2027, ensuring Hong Kong's competitiveness as a green and sustainable finance centre. Deloitte will align with government policies and leverage the advantages and expertise of our Innovation & Assets Development Center at Hong Kong Science Park to strengthen the ecosystem, nurture talent and enhance the competitiveness of I&T in Hong Kong."

Related links

• Hong Kong SAR Budget 2024/2025