Hong Kong has entered the worst phase of the COVID-19 pandemic with the raging Omicron variant threatening its people and economy. Financial Secretary Paul Chan Mo-po, fortunately, still has the wherewithal to come up with a “rescue” budget.
Hopefully, the HK$170 billion ($21.7 billion) package of measures on offer will tie us over till the health crisis subsides with central government support. Of that, HK$66.4 billion will be spent on e-vouchers for eligible residents — with each receiving HK$10,000 — to boost consumption; and HK$67.5 billion to sustain the fight against the pandemic. That is some financial firepower, exceeding last year’s HK$120 billion.
And, in a welcome development, Chan has also taken the first but significant steps to make the local tax regime more progressive and equitable.
Amid the grim outlook, there is at least the good news that the city can expect a surplus of HK$18.8 billion in fiscal year 2021-22, instead of the HK$101.6 billion deficit originally projected. That has encouraged Chan to be more generous.
It remains to be seen whether the economy could rebound with a projected consensus growth of 2 to 3.5 percent for the entire year. That premises on a speedy overcoming of the current outbreak. There will be a HK$56 billion deficit, though, for the next fiscal year. Chan should be commended for willing to live with a temporary deficit for the welfare of the community, breaking the old colonial stingy outlook typified by his predecessor, John Tsang Chun-wah.
The budget aims deliberately to protect the middle class and small to medium-sized enterprises. It’s a wise move. It will also introduce more progressive new tax measures for owners of multiple homes and multinational corporations. That will remove some long-standing inequities within the tax system.
First-time buyers may now take out mortgages worth 90 percent of the flat price by borrowing up to HK$10 million, up from the previous HK$8 million. Those taking out the more standard 80 percent mortgages can purchase flats worth a maximum of HK$12 million, up from HK$10 million. This will make it easier for young couples and professionals to start a family and buy a decent-sized flat beyond the “nano” flats that are little bigger than a parking space.
For the first time, taxpayers can deduct from their rents up to HK$100,000 a year per person. As home prices become unaffordable to many, even professionals, more people are opting for rental flats rather than buying their first homes. It has been unfair that, for a long time, qualified mortgage holders can claim tax deductions but not renters. Now there is a remedy.
To help struggling businesses, there will be a moratorium, subject to Legislative Council approval, on rent enforcement by landlords for three months, and renewable for another three. To enforce a more progressive tax system, beginning with fiscal year 2023-24, owners of multiple residential properties will be limited to applying for tax rebates for only one self-occupied home. That is expected to save the government an estimated HK$3.1 billion a year in rate concessions.
Meanwhile, following an agreement made among more than 130 nations under the Organisation for Economic Cooperation and Development last year, there will be a domestic minimum top-up tax of 15 percent for about 200 multinational corporations operating in the city. It’s expected to kick in from 2024-25.
Hong Kong is often praised for its low and efficient tax system. While it is certainly efficient, it also contains many regressive features and loopholes that favor wealthy individuals and big corporations.
As it is President Xi Jinping’s inspired vision for China to enjoy “common prosperity” and decent living standards for all, Hong Kong, with its enormous wealth, often distributed unequally, needs to follow Xi’s call, too. There is a consensus among local critics and government officials that social malaise and disaffection have contaminated the city’s body politic and social fabric because of long-standing livelihood issues that have plagued the less-fortunate classes in the city. The 2019 social unrest was the result of long-simmering problems that were left unaddressed and festering.
It’s true that the introduction of the National Security Law for Hong Kong has restored and maintained order. And the improvement of the electoral system will stabilize local politics and protect society from political malcontents. Besides offering the stick, there must also be carrots.
For the local wealthy and expatriate classes, the city remains world class and wonderful to live in, despite the temporary restrictions imposed to contain the pandemic. But life is often harsh for those who are less lucky and privileged.
Young couples and professionals need better housing, not “nano” flats. Young people need hope for the future, and more career opportunities and social mobility. Otherwise, their resentment and self-doubt grow, making them susceptible to foreign influence and malignant media manipulation.
Chan’s budget will help boost morale among the populace and lend support to the economy. It has also made a good start in achieving a more-equitable tax regime. But we need at least several rounds of annual budgets and policy addresses from future financial secretaries and chief executives for Hong Kong to become not only rich but fair for all.
The author is a veteran journalist covering mainland and HK economic and political issues.