Hong Kong Budget 2021: $8.4b for COVID-19 vaccines; no new taxes

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.

COVID-19 response

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.

Job support

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:

Financial Services

• Issue no less than $24 billion of Silver Bond and no less than $15 billion of iBond this year. Lower the eligible age for Silver Bond subscription from 65 to 60
• Issue green bonds totalling $175.5 billion within the next five years, and plan to issue retail green bonds
• Roll out Green and Sustainable Finance Grant Scheme to subsidise expenses on bond issuance and external review services
• Strive for the launch of Southbound Trading of Bond Connect within this year, and enhance the domestic Central Moneymarkets Unit
• Provide subsidy for Real Estate Investment Trusts to list in Hong Kong
• Launch a Pilot Insurance-linked Securities Grant Scheme to subsidise issuance costs
• Provide subsidy for Open-ended Fund Companies to set up in or re-domicile to Hong Kong
• Review tax arrangements relevant to family office business

Innovation and Technology

• Earmark over $200m to roll out “Knowing More About IT” Programme, subsidise primary schools to enhance students’ interests and knowledge in I&T and their applications through extra-curricular activities
• Regularise the pilot scheme, which subsidises students studying science and technology in local universities to enrol in short-term I&T related internships
• Inject $9.5b into the Innovation and Technology Fund by two yearly instalments
• Hong Kong Monetary Authority to consider enhancing its Fintech Supervisory Sandbox to reduce time for launching innovative financial products in the market
• Press ahead with the development of the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop
• Continue to implement the Science Park expansion and Cyberport 5 development
• Continue to support the development of 5G networks and applications
• Commence progressively the operation of the first batch of about 20 R&D laboratories under the “InnoHK Research Clusters” in the first quarter of this year

Air Cargo Sector
 

• With the expansion of the existing express air cargo terminal, the commissioning of a new premium logistics centre and the Three Runway System, and the annual cargo handling capacity of Hong Kong International Airport (HKIA) is expected to increase to some 9 million tonnes in 2024
• Explore measures to facilitate trans-shipment through Hong Kong to maintain Hong Kong’s competitive edge as an international air cargo hub
• Redevelop the Air Mail Centre at HKIA to become operational by end 2027 at the earliest

Cultural and Creative Industries

• Inject an additional $1 billion into the CreateSmart Initiative

Construction Industry

• Enhance the professional skills of mid-tier managers in the Government and uplift their project delivery capability
• Promote cost management culture to the industry
• Continue to promote the Modular Integrated Construction (MiC) method and digitalisation of public works

Land and housing

• Potential land supply of 2021-22 Land Sale Programme, railway property development projects and private development/redevelopment projects expected to provide about 16 500 units. Another three commercial sites estimated to provide floor area of about 480 000 sqm
• New development area projects and other development projects under planning expected to provide a total of over 860 hectares of brownfield sites in the New Territories which can be redeveloped for housing and other land use
• Examine the feasibility of rezoning five commercial sites in Kowloon East for residential use, which are expected to provide about 5 800 private housing units in total
• Review about 40 Government, Institution or Community sites with joint use potential and put forward development proposals this year
• Introduce a pilot scheme in this quarter for charging land premium at “standard rates” to encourage redevelopment of industrial buildings

Housing Supply
 

• Public housing: Estimated production in the five-year period from 2020-21 is about 101 400 units, comprising over 70 000 public rental housing/ Green Form Subsidised Home Ownership Scheme units, and over 30 000 subsidised sale units
• Private housing: Estimated average annual production in the five-year period from 2021 is more than 18 000 units

Green City

• Announce Hong Kong's first roadmap on the popularisation of electric vehicles, measures include ceasing the new registration of fuel-propelled private cars in 2035 or earlier
• Complete updated Clean Air Plan for Hong Kong by mid-2021
• Earmark $1b to install small-scale renewable energy systems at government buildings and infrastructure
• Earmark $150m to conduct energy audits and install energy-saving appliances, free of charge, for social welfare NGOs
• Inject $1b into Recycling Fund and extend the application period to 2027

Relieve Traffic Congestion

• Increase the rate of each tax band for the first registration tax for private cars (including electric private cars) by 15% and the vehicle licence fee by 30%
• Transport Department to continue the studies on “Congestion Charging” and the Electric Road Pricing Pilot Scheme in Central

Quality Living

• Earmark $500m to enhance facilities in country parks
• Earmark $55m to enhance hiking trails in country parks
• Earmark around $300m to implement a five-year plan for upgrading football pitches
• Continue to implement harbourfront enhancement works

Strengthen Healthcare System

• Allocate $147m to enhance mental health services
• Continue to work with universities to upgrade and increase healthcare-related teaching facilities
• Commence operation of 2 District Health Centres in the coming two years, and set up “DHC Expresses” in another 11 districts within this year
• Press ahead with implementing the first 10-year Hospital Development Plan (HDP) and the planning of the second 10-year HDP

Caring and Inclusion

• Provide about 8 800 residential care places and about 2 800 subsidised day care service places in the coming few years
• Increase the number of places for on-site pre-school rehabilitation services to 10 000 in 2022/23 school year
• Inject $1.1b into Lotteries Fund to ensure that feasibility studies for much-needed social welfare development projects can proceed as scheduled