Hong Kong vowed to narrow its fiscal deficit after announcing the city’s on course for the fourth budget shortfall in five years. 

The shortfall for the financial year ending Mar 31 is projected at HK$101.6 billion (S$17.4 billion), Financial Secretary Paul Chan said in his budget address on Wednesday (Feb 28). That’s almost double the HK$54.4 billion estimate initially laid out in last year’s speech. Chan expects to shrink the deficit to HK$48.1 billion for the next financial year ending March 2025.

The government will consolidate its public finances and “narrow our fiscal deficit progressively towards achieving the goal of restoring fiscal balance”, Chan told lawmakers.

He added that the economy is expected to grow 2.5 to 3.5 per cent this year.

Falling land sales and a weakened economy have hurt the city’s income, even after the lifting of travel and other curbs which curtailed activity during the pandemic. Revenue from land premiums for this year is set to be HK$19.4 billion, much lower than the original estimate by HK$65.6 billion.

Chan announced a range of measures to boost the city’s weak housing market and tourism industry, including roughly HK$1 billion to attract visitors and host major events.

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The city will also raise the tax rate on high earners, in the first increase in two decades. A higher tax rate of 16 per cent will apply to income exceeding HK$5 million. Previously, tax for all individuals was capped at 15 per cent.

Revenue from land premiums is estimated to be HK$33 billion for 2024 to 2025, increasing by 70.1 per cent over the revised estimate for the current year. To boost the government’s income, Chan raised taxes on tobacco to 70 per cent and brought back a 3 per cent tax on hotel room rates. 

Spending this year is estimated to fall to HK$728 billion, coming down from the HK$810 billion spent when the city was still in pandemic isolation. BLOOMBERG