The Hong Kong government has escaped the swamp of prolonged deficits and entered a full-fledged phase of economic recovery. On the back of its first budget surplus in four years, Hong Kong will launch large-scale investments in advanced technology sectors such as artificial intelligence (AI).
On the 25th (local time), Financial Secretary Paul Chan said in his annual budget speech that Hong Kong posted a surplus of 2.9 billion Hong Kong dollars (about 528.2 billion won) in the last fiscal year. That is a sharp improvement from the government's earlier forecast for a 67 billion Hong Kong dollar (about 12.2061 trillion won) deficit. With this, Hong Kong ended a four-year streak of deficits that began in 2020.
Behind Hong Kong's surprise surplus were strong economic growth and a recovery in capital markets. In particular, a stock market boom drove stamp duty and corporate tax receipts to exceed expectations by about 50 billion Hong Kong dollars (about 9.1015 trillion won), which proved decisive. Chan said, "Tax revenue increased thanks to economic revitalization and the boom in capital markets, and the fiscal consolidation program we have pursued has borne fruit faster than expected." Accordingly, the Hong Kong government raised its economic growth forecast for this year to 2.5%–3.5%, above market expectations.
The centerpiece of this budget is concentrated investment in the technology industry, the "future breadwinner." The Hong Kong government will allocate at least 30 billion Hong Kong dollars (about 5.4538 trillion won) to develop a technology hub in the border area and step up efforts to foster the AI industry. Specifically, it will invest 100 million Hong Kong dollars to introduce AI in the public institutional sector and 50 million Hong Kong dollars for AI education for residents. It will also allocate 10 billion Hong Kong dollars each to develop the Hetao Innovation Zone being co-developed with Shenzhen, the San Tin Technopole, and the Hung Shui Kiu industrial park. These are core zones of the "Northern Metropolis" plan, Hong Kong's next-generation growth engine.
With more fiscal room, the Hong Kong government also rolled out measures to ease the cost of living. It restored last year's halved salary tax reduction cap back to 3,000 Hong Kong dollars and raised the child and dependent allowances by 8%–10%. The child allowance will be expanded to 140,000 Hong Kong dollars, and the allowance for supporting parents aged 60 or older will be increased to 55,000 Hong Kong dollars.
However, the tightening stance has not fully ended. The Hong Kong government plans to cut recurrent expenditure by 2% over the next two years and reduce the civil service headcount by 2% each year. It also sought tax equity by raising the stamp duty on ultra-high-priced dwellings of 100 million Hong Kong dollars or more from 4.25% to 6.5%, amid signs of overheating.
The Hong Kong stock market climbed to a record high during the budget announcement before giving back part of the gains. Last year, the Hong Kong market rose about 28%, marking its best annual performance since 2017. Chinese investors, buoyed by optimism about AI, poured a record high of 1.4 trillion Hong Kong dollars (about 254.688 trillion won) into Hong Kong stocks and exchange-traded funds (ETF) throughout last year.