The Hong Kong government has unveiled its budget for the 2025-26 fiscal year, with significant measures aimed at addressing a projected deficit of HK$87.2 billion and ensuring fiscal sustainability. Financial Secretary Paul Chan Mo-po presented these strategies during his speech at the Legislative Council on February 26, 2025, emphasizing the urgent need for reform and innovation within the local economy.
Among the notable changes is the decision to freeze salaries for all public servants, including the chief executive, judges, lawmakers, and civil servants. "The government puts forward... the executive authorities, the legislature, the judiciary... take a pay freeze," Chan declared. This move reflects the city's continuing struggle to balance its books, having recorded deficit figures of HK$122 billion and HK$101 billion over the previous two fiscal years.
Chan articulated the government's commitment to leading by example, stating, "This budget... includes... a cumulative reduction of government recurrent expenditure by seven percent from now through 2027-28." These cuts are part of Chan's reinforced fiscal consolidation plan aimed at stabilizing the economy and mitigating financial pressures facing the city.
Further compounding the local challenges, the civil service establishment will see around 10,000 positions eliminated over the next two years. Currently, the civil service comprises approximately 191,000 posts, with the financial secretary underlining the current fiscal reality: "Strictly containing public expenditure is a must, but we should proceed in a steady and prudent manner." The measures are meant not only to restore fiscal balance but also to maintain the quality and delivery of public services.
Recognizing the delicate balance the government must tread, Chan reiterated the significance of ensuring sufficient public support as the city navigates its way through fiscal challenges. He acknowledged the economic growth recorded at 2.5 percent last year and projected modest growth of 2 to 3 percent for 2025, which is expected to rise steadily through 2029.
Chan also highlighted the government’s reliance on enhancing revenue through bond issuances, with plans to issue between HK$150 billion to HK$195 billion to finance infrastructure projects and bolster the economy. "The Budget will reinforce the Government's financial strength... creating new momentum for economic development," commented Chief Executive John Lee, affirming the administration's dedication to fostering progressive reforms.
Despite the downturns, there are signs of recuperation, with visitor arrivals surging by around 30% last year and the stock market showing promise. The Hang Seng Index has witnessed considerable improvements, indicating renewed investor confidence. This, combined with strategic initiatives to attract talent and enterprise, signifies Hong Kong's resilience against external pressures such as geopolitical tensions and market fluctuations.
Yet, challenges remain: local industries continue to face shifting consumption trends, and asset markets show signs of strain. Chan noted, "The international geopolitical climate has led to disruptions... putting Hong Kong's economic resilience to the test," referencing the current high-interest rates and their impact on local businesses.
To counter these challenges, the government plans to invest significantly in innovation and technology sectors, heralding artificial intelligence (AI) as a core industry for future development. The budget allocates HK$1 billion to establish the Hong Kong AI Research and Development Institute, aiming to back frontier research and support traditional industries through technological advancements.
These prudent fiscal measures are expected to shape the outlook for Hong Kong's economy, with enhanced public services and smarter governance coming to the forefront. Chan concluded his presentation emphasizing the intertwined relationship between fiscal discipline and economic growth, urging all sectors to support the budget's implementation for sustained prosperity.