The Hong Kong government sees 3.5%-5.5% economic growth in 2021.
Economic recovery and pandemic response measures are among the Hong Kong government’s top priorities for the 2021-22 appropriations bill as it sees the economy will likely grow by 3.5%-5.5% this year.
Hong Kong’s gross domestic product (GDP) contracted by 6.1% in 2020, the second consecutive year the city experienced a negative growth due to the health crisis.
Financial Secretary Paul Chan said whilst economic recovery hinges on pandemic-related development, it will likely gain a stronger momentum in the second half of the year, provided the public cooperates.
“Having regard to the latest internal and external situations as well as the stimulus effect of the fiscal measures, I forecast that our economy will grow by 3.5 per cent to 5.5 per cent in real terms this year,” Chan said in his budget address on 24 February.
He also predicted headline inflation rate and underlying rate will be 1.6% and 1%, respectively, this year.
He added Hong Kong will continue to benefit from Mainland China’s 14th Five Year Plan, the Regional Comprehensive Economic Partnership Agreement, the Guangdong-Hong Kong-Macao Greater Bay Area, and the Belt and Road Initiative. Chan said this could lead to an average annual growth of 3.3% in real terms from 2022 to 2025 whilst underlying inflation rate will average 2%.
Chan said the estimated deficit in 2020/21 is $257.6b whilst deficit in the following fiscal year is expected at $101.6b, equivalent to 3.6% of the GDP due to the “counter-cyclical fiscal measures and continued increase in recurrent expenditure.”
He noted deficit is expected in the next four consecutive years, or from FY 2022/23 to 2025/26. In response to these, he suggested reducing expenditure through zero growth in the civil service establishment in 2021/22 and trimming government’s recurring expense by 1% in 2022/21. This could generate $3.9b in savings.
He also proposed raising revenues by increasing rate of Stamp Duty on Stock Transfers to 0.13% from 0.1% presently. He added the government will review and study revising profits tax and salaries tax rates and potential new taxes as he sees it is not the appropriate time to make such adjustments.
The government kicked off this week its vaccination drive and in line with this some $8.4b will be earmarked from the 2021/22 spending plan for the procurement and administration of COVID-19 vaccines. The government targets to inoculate majority of the population for free.
Chan noted the government will ask the Finance Committee of the Legislative Council to set aside $1b for vaccination indemnity by the end of this month.
He added a total of $4.7b from the Anti-epidemic Fund and $3,044m will be used to support Hospital Authority in ensuring health care worker protection and in operating the Community Treatment Facility and the Hong Kong Infection Control Centre.
Tax reduction and fee privileges
Further, in support of hard-hit sectors, the government push for measures, intended to boost enterprise recovery and aid in employment.
This, however, will cost $9.5 billion in foregone revenue as the government moves to reduce profit tax for 2020/21 by 100%, subject to a $10,000 ceiling; provide rate concessions for non-domestic properties for 2021/22 with a $2,000-5,000 ceiling; and waive business registration fees.
The government will also continue to waive 75% of charges for water and sewerage, shouldered by non-domestic households starting April 2021 and grant 75% rental or fee concession to eligible tenants of government-owned properties.
Small and Medium Enterprises, meanwhile, will be allowed to apply for the Special 100% Guarantee Product, as Chan extends the application period until the end of the year. He will also increase the maximum loan amount per enterprises as well as raise the ceiling to $6m from $5m and extend repayment period among other adjustments.
The government will also ask the Employees Retraining Board to launch the fourth tranche of the Love Upgrading Special Scheme in July-December 2021. The training program is expected to benefit 20,000 individuals within the said period.
Jobless rate in Hong Kong reached 7% in 2020 after the city was hit with the fourth wave of COVID-19 outbreak.
Chan proposed to allocate $6.6b to create around 30,000 temporary jobs for 12 months. On top of this, he proposed setting up a Special 100% Loan Guarantee for Individuals Scheme that will grant a maximum loan worth six time the employees’ average monthly income.
The loan will have a ceiling of $80,000. There will be a principal moratorium for the first 12 months, after which it can be repaid in the next five years with a 1% annual interest rate.
Moreover, the government will reduce salaries tax and tax under personal assessment by 100% subject to a $10,000 ceiling, provide rate concessions for domestic properties, and grant a$1,000 residential electricity account subsidy.
Reviving the economy
Aside from this, Chan said the Hong Kong government should have a more targeted approach to ensure the city not only recovers but also comes out of the pandemic ready to capture advantages outside Hong Kong.
This includes providing support for the digital economy, issuance of consumption vouchers, exploring markets, support tourism, and ultimately promote Hong Kong.
Chan said he has committed $375m to the Hong Kong Trade Development Council for three years, starting 2021/22 for the development of virtual platforms. The government also expedited its thrusts towards e-governance as it targets all forms and licence applications and payment will be done electronically by mid-2022.
Consumption vouchers worth $5,000 will also be issued in instalments to permanent residents and new arrivals, aged 18 and above. This is expected to benefit 7.2 million people.
Some $1.5b will be injected to the Dedicated Fund on Branding, Upgrading and Domestic Sales to support enterprises in exploring diversified markets as well as $934m for the tourism sector to promote local culture and heritage as well as green tourism.
A total of %765m will also be used to fund efforts of the Hong Kong Tourism Board to revive the industry.
To further stimulate the economy, Chan made the following proposals:
Innovation and Technology
Air Cargo Sector
Cultural and Creative Industries
Land and housing
Relieve Traffic Congestion
Strengthen Healthcare System
Caring and Inclusion
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