Hong Kong hands out cash, cuts duties despite larger deficit (updated)

Sun Hung Kai Properties

22/02/2023 03:44

(Adds details, comments)
    By Clare Jim and Donny Kwok
       HONG KONG, Feb 22 (Reuters) - Hong Kong is set for
back-to-back deficits but will give cash handouts and ease stamp
duties for first time property buyers, to support an economy
buffeted by prolonged COVID-19 restrictions, the city announced
in its budget on Wednesday.
    The global financial hub recorded a deficit of HK$140
billion in 2022/23, more than double the HK$56 billion it
initially estimated, Financial Secretary Paul Chan said, when
delivering the budget at the Legislative Council. 
    He forecast another deficit for 2023/24 of HK$54.4 billion.
    Chan told legislators the city was at the beginning of an
economic recovery, no longer shackled by stringent COVID
measures that have isolated it from the rest of the world.
    "I believe that Hong Kong's economy will visibly recover
this year, and I remain positive," Chan said, noting he would
take a "moderately liberal" fiscal stance this year to sustain
the impetus for economic recovery. 
    "However, the economic recovery is still in its initial
stage, and there is a need for our people and businesses to
regain vigour."
    The city's economy is expected to grow 3.5%-5.5% this year
after contracting 3.5% in 2022, Chan said. Underlying inflation
is expected to hit 2.5%.
    Hong Kong will issue vouchers worth HK$5,000 ($637) per
person to all adults this year, half the amount issued in 2022.
    Chan flagged tax rebates in salaries and profits taxes,
capped at HK$6,000, lower than the caps set for the previous
budget.
    STAMP DUTY "ADJUSTMENT"
    Amid weakness in local property prices that fell more than
15% last year, the government also announced it would adjust
stamp duties for first time local home buyers, with a "view to
easing the burden on ordinary families" and properties valued at
HK$10 million and less will benefit.
    Chan, however, said other demand side residential measures
introduced over the past decade to cool one of the world's
hottest property markets, would remain unchanged.
    The measure would benefit 37,000 buyers and cost the
government HK$1.9 billion.
    The Hang Seng Properties sub-index  .HSNP  extended gains to
as much as 1.3% in afternoon trade. Sun Hung Kai Properties
 0016.HK , the largest developer in the financial hub by market
cap, jumped as much as 3.4%, compared with a 0.2% fall in the
main Hang Seng Index  .HSI .
    The sustainability of Hong Kong's fiscal reserves, however,
remains a concern after authorities spent more than HK$600
billion containing the spread of COVID-19 and providing economic
relief for businesses and families struggling with pandemic
restrictions.
    The budget shortfalls mean the public coffers would be
depleted to HK$762 billion ($97 billion) in 2023/24 --
equivalent to 12 months of government expenditure -- around half
the levels three years ago.
    Hong Kong usually runs balanced budgets or surpluses, since
its pegged currency system commits it to fiscal prudence.
    "HAPPY" HONG KONG?  
    Since China's imposition of a sweeping national security law
in 2020 that critics say markedly curbed individual freedoms,
hundreds of thousands of residents have moved away, bringing
further uncertainty and longer-term economic pressures on Hong
Kong's regional competitiveness.
    Analysts say exposure to a weakening global economy and the
need to keep up with U.S. interest rate hikes to maintain the
local currency's peg to the dollar will also lead to
uncertainties over Hong Kong's economic recovery. 
    However, Chan said the opening of China's border would
alleviate some pressure with business and logistics links
normalising after the lockdowns.
    He also said a "Happy Hong Kong" campaign would be launched
for the general public, including gourmet food fairs and
harbourfront carnivals that would help stimulate consumption.
    He cited a speech by China's leader Xi Jinping, urging Hong
Kong to "break new ground and achieve another leap forward" in
the next five years, despite economic, social and political
upheavals. 
    Among other initiatives, the government will introduce a new
capital investment entrant scheme to attract talent. 
   ($1 = 7.8488 Hong Kong dollars)
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Excerpts-Hong Kong budget fir fiscal 2023/24     ID:nL4N352117 
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 (Additional reporting by Jessie Pang; Writing by Marius Zaharia
and James Pomfret; Editing by Jacqueline Wong)
 ((marius.zaharia@thomsonreuters.com; +852 2843 6358;))