Financial Secretary Paul Chan Mo-po delivered the Hong Kong budget initiatives for the 2020/21 fiscal year on 26 February 2020. If you haven’t read the key updates of the Budget, don’t worry; we’ve concluded the crucial points for you, so you can digest them in the shortest time possible. Given the country’s economic downturn caused by Covid-19 epidemic and the deterioration of the China-US relations and other challenges, an unprecedented budget deficit of HK$257.6 billion (approximately US$33.2 billion) for the 2020-21 fiscal year is reported by Hong Kong SAR — the largest deficit in 20 years.
The Hong Kong Budget 2020/2021 is set out to provide more opportunities for Hong Kong enterprises; these initiatives aim to help businesses overcome the economic hardships faced during this period. Chan states that the budget’s main objectives include “supporting enterprises, safeguarding jobs, stimulating the economy, and relieving people’s burden”. Note that this budget spans two years – 2020 and 2021, where some initiatives may already have been rolled out in the previous year. However, in this article, we will take a future-oriented approach and explain the details in future tense.
For concise reading, we will focus on three main areas that highlight the budget’s objectives. They are:
- Stimulate the economy and smoothen livelihoods
- Support enterprises and safeguard jobs,
- Building a liveable city, and
- Developing a diversified economy.
1. Stimulate the economy and smoothen livelihoods
Distribute cash payouts and decrease salary taxes
For this period, the Hong Kong government will give a cash payout of $10,000 to Hong Kong permanent residents aged 18 or above to stimulate the consumption. In addition, it will reduce salaries tax and tax under personal assessment for 2019-20 assessment year by 100%, subject to a ceiling of $20,000. Rates of domestic properties monthly allowance of trainees for four quarters of 2020-21 will be waived, subject to a $1,500 ceiling per quarter.
Social welfare measures
The Hong Kong Budget also provides social welfare measures to relieve different income/age groups’ financial burdens. For example, the older-aged will receive an extra 1 month allowance of standard CSSA payment, Old Age Allowance etc. Similar arrangements will apply to Working Family Allowance and Individual-based Work Incentive Transport Subsidy. For lower income tenants living in public rental units, they will receive 1 month’s rent payment.
To enhance the Labour Department’s employment programmes, the HK government will:
- Provide additional annual funding of $30 million, and
- Raise the ceiling of on-the-job training allowances.
Also, the Love Upgrading Special Scheme will:
- Provide $2.5 billion to the Employees Retraining Board, and
- Increase the maximum monthly allowance of trainees to $5800.
Finally, the Construction Industry Council will allocate $200 million worth of training allowances for workers. In addition, SME contractors and registered subcontractors will be subsidised with a ceiling of $20,000 each.
Loan guarantee for individuals
To relieve hardship, the government will set up a special 100% Loan Guarantee for individuals, such as providing an extra financing option for the unemployed. The loan ceiling is at $80,000 and the application period is 6 months. In addition, the interest rate is fixed at 1% per annum and maximum repayment period of 5 years. There is a principal moratorium for the first 12 months. Offer reimbursement for interest paid after loans are repaid in full as scheduled.
Innovation and technology
The Hong Kong Government is pro-innovation and embraces technology. In fact, here are some evident details highlighted in the budget:
- To take forward Phase 2 of the Science Park Expansion Programme, the government will set aside $3 billion.
- Earmark over $200 million 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.
- Explore the establishment of a third InnoHK research cluster.
- Increase the grant ceiling under the Technology Voucher Programme to $600,000 and raise the Government’s funding ratio to 75%.
- Inject $345 million for a pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.
2. Support enterprises and safeguard jobs
Concessionary loan policy
The government will introduce a concessionary low-interest loan for enterprises, which will be open for application for 6 months. Also, a maximum loan of $2 million with repayment period is up to 3 years and moratorium on principal repayment can be for the first 6 months.
Reduce business burden
Tax on profits for 2019-20 assessment year is reduced by 100%, subject to a $20,000 ceiling. The Government will also waive tax rates for non-domestic properties for 2020-21. In addition, the Government will waive business registration fees for 2020-21 and registration fees for company annual returns as well.
The HK government will continue to implement relief measures, such as subsidising 75% of electricity charges for non-residential accounts for 4 extra months, subject to a monthly cap of $5,000. Furthermore, the government will continue to grant 75% rental/fee concession for eligible Government properties/short-term tenancies and waivers for 6 months.
Stimulate electronic consumption
Issue $5,000 electronic consumption vouchers in instalments to each eligible Hong Kong permanent resident and new arrival aged 18 or above to facilitate and stimulate local consumption.
To secure employment, the government will be launching the fourth tranche of the Love Upgrading Special Scheme and provide more training options such as online courses. They will also explore plans to expand the scope of the Continuing Education Fund to include online courses. The government has even allocated $6.6 billion to create around 30000 time-limited jobs.
To reduce reliance on foreign hires, the government hopes to nurture and develop exceptional talent from within. Hence, the budget suggests the following initiatives:
- Expand the Researcher Programme and Postdoctoral Hub to cover all technology companies conducting R&D activities in Hong Kong.
- Earmark $40 million to subsidise short- term internships for undergraduates and postgraduates taking STEM programmes in local universities.
- Government and public organisations to increase short-term internship places for 2020-21 to almost 5,000.
3. Building a liveable city
Strengthen healthcare system
The government will be devoting a lot of resources to enhance health and medical-related services, such as: the formulation of the second 10-year Hospital Development Plan, sufficient financial support for the Hospital Authority (HA) and the Department of Health for anti-epidemic efforts, enhancement of healthcare manpower training, upgrading or acquisition of medical equipment, establishment of a $10 billion public healthcare stabilisation fund, and finally, the development of Chinese medicine services.
Tourism and trade
To increase tourism and trade efforts, the Government will allocate additional funding of over $700 million to the Hong Kong Tourism Board to step up external promotions after the epidemic. In addition, to help Hong Kong enterprises explore new business opportunities, an additional funding of $150 million is also injected into the Hong Kong Trade Development Council.
About $450 million is earmarked to implement the “Vision 2030 for Rule of Law” project to strengthen the Hong Kong community’s understanding of the concept of
the rule of law and its implementation. This is for the legal sector.
Cultural and creative industries
The Hong Kong Government will also set aside an additional $900 million for the Art Development Matching Grants Scheme to further promote the culture and arts scenes.
Technologies for low- or zero-emission transport for private cars and commercial vehicles have advanced rapidly in the last decade or so. This is especially relevant to Hong Kong given its small land area and large population size. Replacing conventional vehicles with EVs can help improve roadside air quality and reduce greenhouse gas emissions.
In this budget, Hong Kong’s first roadmap on the use of electric vehicles was formulated. This also includes a variety of schemes:
- Launch a $2 billion pilot scheme to subsidise the installation of charging-enabling infrastructure in car parks of private residential buildings.
- Earmark $80 million to launch a pilot scheme for electric public light buses.
- Earmark $350 million to launch a pilot scheme for electric ferries.
Hong Kong’s high degree of autonomy in crafting environmental legislation has allowed the city to impose its own climate targets separate from China’s. Here are some initiatives from the Hong Kong Budget:
- Earmark $300 million for the Cleaner Production Partnership Programme to encourage Hong Kong-owned factories to adopt cleaner production technologies. This is to help improve the regional environment.
- Set up a $200 million Green Tech Fund to support the R&D and application of decarbonisation and green technologies.
- Earmark no less than $300 million per year to implement waste paper collection and recycling services. This is to help stabilise the quantity and price of local waste paper.
Smart city development
The Smart City Blueprint for Hong Kong 2.0 aims to further promote smart city development. In addition, these are some applaudable initiatives:
- Earmark $1 billion for the Smart Traffic Fund to subsidise research and application on vehicle-related I&T.
- Allocate $100 million to develop an integrated digital platform for data integration and information exchange in order to strengthen project supervision.
- Launch the “iAM Smart”, a one-stop personalised digital service platform.
- Continue to support the development of 5G networks and applications.
Land and housing
Potential land supply of 2020-21 Land Sale Programme, railway property development projects and private development/ redevelopment projects expected to provide about 15,700 units. In addition, another 6 commercial sites are estimated to provide a floor area of about 830,000 sqm.
4. Developing a diversified economy
Hong Kong aims to diversify its economy by not only boosting the industries currently enjoying competitive edges, but also by identifying new areas of growth. Examples from the budget include:
- Provide subsidies for Real Estate Investment Trusts (REITs) to list in Hong Kong and subsidy for Open-ended Fund Companies to set up in or re-domicile to Hong Kong.
- Waive stamp duties on stock transfers paid by the Exchange Traded Fund (ETF) market makers when creating and redeeming ETF units in Hong Kong.
- Establish a limited partnership regime and provide tax concessions for carried interest issued by private equity funds to attract them to domicile and operate in Hong Kong.
Comparing the 2019-20 financial year to the 2020-21 financial year, Hong Kong’s financial deficit went up from $37.8 billion to $139.1 billion; this is equivalent to the change from 1.3% of GDP to 4.8% of GDP. The previous few years were fraught with challenges for all of Hong Kong. As a result, the Government decided that they should look at making correct assessments of major upcoming development trends and invest in the future. As such, many observers hailed the Hong Kong Budget 2020/2021 as the most ambitious and far-reaching Hong Kong budget to date.
The objectives, “supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden”, spans across various sectors and groups of people. With the measures outlined in this all-encompassing plan, we hope they will facilitate the sustainable development of Hong Kong’s society and economy in the near future.