How can Hong Kong address its growing budget deficit?

A consolidated budget deficit of $94.8b is projected for 2025.

With Hong Kong grappling with a larger-than-anticipated budget deficit, recommendations have been proposed to guide the government’s upcoming budget planning.

According to PwC Hong Kong (PwC), property transaction slowdowns in 2024 have led to a significant reduction in land sales and stamp duty revenues. PwC estimated that land sales revenue will amount to $8b, a drastic 76% drop from the government's original forecast of $33b.

Meanwhile, stamp duty is expected to generate only $58b, which is 18% lower than the projected $71b. Similarly, revenues from profits tax and salaries tax are expected to stand at $247.6b, a 10% shortfall from the original projection of $275.6b.

As of March 2025, fiscal reserves are projected to drop to $639.8b, the lowest in Hong Kong’s history. If government spending continues unchecked, PwC warned of deficits over the next four years. The firm called for a comprehensive review of public expenditure to contain costs whilst balancing the impact on the public.

PwC predicts a consolidated budget deficit of $94.8b for 2025, nearly double the government’s initial estimate, citing global economic uncertainties.

Jeremy Ngai, PwC South China tax leader, emphasised leveraging Hong Kong’s location in the Greater Bay Area (GBA) to maintain its role as a key connector between mainland China and the world. He also cited the need to foster innovation and retain talent to support future growth.

Additionally, PwC’s Agnes Wong, tax leader for South Private Clients and Family Offices, called for a more welcoming environment for international talent. She proposed creating a one-stop facilitation service to streamline visa applications, align talent with suitable job opportunities, and arrange educational services for expatriate families.

Wong also advocated for tax enhancements to provide unilateral relief for individuals in tax treaty jurisdictions.

To support the local workforce, she recommended tax deductions for employers investing in the upskilling and reskilling of their employees to meet the demands of a rapidly evolving business environment.

Moreover, Wong suggested broadening the scope of tax concessions for family offices to include fine arts and collectibles, aligning qualifying investment lists under different investment schemes, and fast-tracking residency statuses for family office principals and their families.

She also supported tax incentives for commodity trading businesses to reinforce Hong Kong’s status as an international shipping hub.

The government should expedite enhancements to preferential tax regimes for investment funds and carried interests, said Rex Ho, PwC Asia Pacific financial services tax leader. He also proposed waiving the buy-side stamp duty on stock trading and offering tax exemptions for market intermediaries to stimulate capital market activity and attract more investors.

Kenneth Wong, tax controversy services leader at PWC, also cited the need to relax intellectual property-related tax rules to support innovation, especially in the GBA. He proposed extending enhanced tax deductions for R&D activities and offering grants for product development in sectors such as drone manufacturing and technology.

Moreover, Simon Booker, PwC’s government and infrastructure partner, recommended engaging the private sector early in the planning and financing of infrastructure projects. He called for a comprehensive five to 10-year infrastructure plan to attract global investments.

Kenneth Wong also advocated for tax incentives to support the development of products and services tailored to the aging population, in line with the government’s silver economy initiatives.