【The Budget】HK flags first fiscal deficit in 15 years and faces gloomy outlook
Financial Secretary Paul Chan Mo-po announced on Wednesday the city’s first fiscal deficit in 15 years of HK$37.8 billion in 2019/2020, about 1.3% of GDP, and alerted deficits for the coming five years.
He forecasts the deficit to increase to a record-high level of HK$139 billion in the coming year, accounting for 4.8% of GDP. He also expects deficit for the next five years.
Chan mainly attributed the hole in the city’s public finances to the fact that the government revenue failed to keep up with a drastic increase in expenditure.
During the past year, expenditure was higher than expected by 0.6% at HK$611.4 billion, while revenue was lower than the original estimate by 9.4% at HK$567.3 billion. The most significant drop was seen in revenue of stamp duty, profits tax and salaries tax
Stamp duty revenue is $63 billion, $13 billion less than the original estimate as trading volumes in the property and stock markets were smaller than expected. Profits tax and salaries tax revenue fell substantially by $40.4 billion under the unstable economic condition.
Chan added new sources of government income is needed, and warned of an “unsustainable growth” of expenditure.
“Our current fiscal reserves of about $1,100 billion enable us to roll out special measures amid the prevailing economic downturn, such as paying out cash. Such special measures and the ever-growing expenditure, however, will deplete our fiscal reserves,” he warned.
But Terence Chong, an associate professor of economics at the Chinese University of Hong Kong, told CNN Business that he is not worried about next year’s projected deficit.
"This [deficit] actually is not that big a deal," he said. "We do have ways to get back the money, so I'm not that worried about that."
The finance chief says the past year has been challenging as the local economy has been battered by months of anti-government protests and the current coronavirus outbreak.
“It’s hard to be optimistic on this year,” he says during his budget speech. “Hong Kong's economy is facing enormous challenges this year. The outlook is far from promising in the near term.”
He expects Hong Kong’s economic growth to lie between negative 1.5% to positive 0.5% in calendar year 2020/2021. In 2019, the economy contracted by 1.2%, the first annual decline since 2009. From 2021 to 2024, Chan forecasts Hong Kong’s economy will grow by an average of 2.8% each year in real terms, while the inflation rate is forecast to average 2.5％
“It’s quite unlikely that Hong Kong can get out of recession because of this budget,” Natixis economist Gary Ng told Reuters, who predicts a 5% GDP contraction this quarter, and a 3% drop for the whole year.
《The Young Financial Post 新報人財經》
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