Hong Kong's Financial Secretary Paul Chan unveiled the 2025-26 budget on Wednesday, announcing ambitious measures to address the city's pressing fiscal deficit, projected to reach HK$87.2 billion. This budget, following two consecutive years of significant financial shortfalls, aims not only to stabilize economic conditions but also to set the groundwork for future recovery amid challenging economic times.
During his address to the Legislative Council, Chan emphasized the necessity for Hong Kong to engage rigorously with economic reforms and innovations, noting the impact of prior counter-cyclical measures implemented to lessen the effects of the pandemic. While these measures have helped stabilize the economy and ease the burdens on citizens, they have also contributed to the current fiscal deficit. "Strictly containing public expenditure is a must, but we should proceed in a steady and prudent manner and be careful to find a balance among the various impacts," Chan remarked, highlighting the delicate challenge of fiscal management coupled with public service sustainability.
The 2025 budget outlines a cumulative reduction of government recurrent expenditure by 7 percent through to the fiscal year 2027-28. Chan stated, "This approach gives us a clear pathway toward the goal of restoring fiscal balance," illustrating the administration's commitment to pursuing fiscal rectification without severely compromising public services or livelihoods.
Looking forward, Chan projected moderate economic growth for Hong Kong. Authorities forecast the city's gross domestic product (GDP) will continue to increase, with expected growth rates of 2 to 3 percent in real terms for this year. Following modest growth of 2.5 percent last year, Chan shared optimistic predictions of average growth at 2.9 percent annually from 2026 to 2029, with underlying inflation anticipated to hover around 2.5 percent per year.
While addressing the current deficit, Chan noted it marks the third consecutive fiscal year of reported shortfalls — having recorded deficits of HK$122 billion and HK$101.6 billion the previous two years respectively. The financial measures Chan proposed include halting land sales for commercial purposes and freezing civil servants' wages, with plans to eliminate 10,000 government positions, thereby aiming for greater budgetary efficiency.
The anticipated reduction of civil service posts is substantial, with public sector employment undergoing adjustments to align with the budgetary realities. These cuts, Chan reassured, would be implemented thoughtfully to avoid detrimental effects on public service delivery.
Chan also noted the administration's focus on balancing expenditure with revenue, mentioning, "Finding new revenue sources is not our top priority right now," which highlights the shift toward austerity and cost-cutting as the immediate solution to fiscal woes. The budget predicts fiscal reserves to decline to approximately HK$647.3 billion by March 31, 2025.
Land-related revenues have taken significant hits as Hong Kong’s property market experiences downturns. To date, only HK$4.3 billion has been achieved through land revenue, starkly below the HK$33 billion target set for the previous year. This downturn is attributed to slow property sales and impacts from economic uncertainty.
Further outlined were plans to implement subsidies for public transport, lowering annual taxes, and providing budget allocations to stimulate Hong Kong’s tourism sector, which is slowly recovering post-pandemic. Chan announced the allocation of HK$1.235 billion to the Hong Kong Tourism Board to promote tourism, aiming to bolster visitor arrivals.
New ventures, such as the establishment of the Hong Kong AI Research and Development Institute with a budget of HK$1 billion, indicate the government’s push toward innovation and technology as pillars of future economic stability. This initiative follows the global trend of integrating advanced technologies in urban economic landscapes.
Chan's address did not shy away from containing expectations. While new strategic enterprises and investments are projected to bring HK$50 billion to the city, the path to fiscal recovery demands concerted effort and pragmatic decisions.
With these measures, Chan hopes to align the city's economic vision with the challenges presented by previous deficits, leveraging financial prudence to pave the way for future growth. The emphasis on fiscal discipline, coupled with strategic investments and responsible public service management, form the core of this year's budgetary strategies.
Through the lens of Hong Kong’s financial present and future, Chan's budget encompasses both urgency and foresight, striving to navigate the city through turbulent economic waters toward longer-term stability and prosperity.