A prudent and progressive budget for Hong Kong in difficult time
Judging from the content of the 2022-23 budget speech delivered by the Hong Kong Financial Secretary Paul Chan on February 23, the Hong Kong government not only maintains the principle of financial prudence in its budgetary planning but also injects a progressive element into the rating system. Overall, the budget has positive impacts on the Hong Kong Special Administrative Region (HKSAR) at a difficult period in which Omicron has not yet reached its apex, which will be expected to come in March according to some public health experts.
The most important feature of the budget speech is the efforts made at relieving the people’s hardship, including the reduction of salaries tax and tax under personal assessment in 2021-22 by 10 percent; the provision of rates concession for domestic properties for four quarters of 2022-23; the granting of a subsidy of HK$1,000 to each eligible residential electricity account; the provision of an allowance to eligible social security recipients equal to one half of a month of the rate of social security payments and old age or disability allowance; and the payment of examination fees for school candidates sitting for the 2023 Diploma of Secondary Education Examination. Moreover, the government provides commuters with more subsidies in their transport fares, while reducing the tax for domestic rental expenses.
To stimulate local consumption and boost the market sentiment, the budget issues consumption vouchers with HK$10,000 to be disbursed by two installments to each permanent resident in April and May, leading to a total of HK$66.4 billion of financial commitment.
To support social enterprises, the government has proposed a number of initiatives: the reduction of profits tax for the year of assessment in 2021-22 by 100 percent subject to a ceiling of HK$10,000; the provision of rates concession for non-domestic properties in 2022-23; the waiving of business registration fees; the waiving of water and sewage charges payable by non-domestic households for eight months until late November 2022; the waiving of government fees and charges for 12 months for 34 groups (including aviation, maritime, logistics, retail, catering, agriculture, construction, tourism and entertainment); the granting of 75 percent rental or fee concession currently applicable to the eligible tenants of government premises; and the extension of cash flow support for small and medium enterprises.
The most interesting aspect of relieving the hardship of social enterprises is the proposal of “rental enforcement moratorium.” The government realizes that many small and medium enterprises are facing hardship amid Covid-19 continuation. As such, it will introduce “new legislation to prohibit landlords from terminating the tenancy of or not providing services to tenants of specified sectors for failing to settle rents on schedule, or taking relevant legal actions against them (section 117 in the budget speech).” The relief will be valid for three months and can be extended one more time for the same duration, with the legislation automatically lapsing after six months. This proposed arrangement will “provide enterprises in deep water with breathing space and help secure employment.”
According to some news reports, those tenants who are the beneficiaries from this scheme may include twenty-three types of premises listed under Cap. 599F Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulations, such as hair salons, games centers, fitness centers, massage parlors, restaurants, retail shops, kindergartens, and private schools.
In fact, massage parlors, hair salons and restaurants have been severely affected amid the persistence of Covid-19. The business atmosphere in the HKSAR is currently bleak with the society awaiting the prospect that Omicron will subside as soon as possible. Many businesses have been closed on the streets. Given that March will witness the mobilization of mass testing, businesses will likely return to normalcy in late April or May. Hence, the “rental enforcement moratorium” would help the business sector in the short run.
In response to the “rental enforcement moratorium,” some businesspeople complained that both landlords and tenants have been suffering, and that prohibiting landlords to chase the rents from their tenants would transfer the financial burden to some landlords who must shoulder mortgages.
An interesting aspect of the budget is to adopt a progressive rating system for properties so that the government revenue will slightly increase. For domestic properties with rateable value of HK$550,000 or below, the government proposes that rates be charged at the present level of five percent of the rateable value (section 185b). For domestic properties with ratable value over HK$550,000, the rates would be charged at five percent of the rateable value on the first HK$550,000 and at eight percent of the rateable value on the next HK$150,000, and then at 12 percent on the rateable value exceeding HK$800,000. This proposal can “reflect the ‘affordable users pay’ principle.” About 42,000 domestic properties will be affected with an expected increase of about HK$760 million in government revenue each year.
Some businesspeople have voiced their concern about this progressive “tax.” However, given the fact that the Hong Kong society is characterized by a wide gulf between the rich and the poor, the government’s very moderate move of adopting the progressive rate system is reasonable, having minimal impacts on the very affluent members of the society. In short, the redistributive impact of such proposal remains limited. In the welfare states of the Western states, progressive tax system has been widely and commonly used to achieve redistributive effects. Perhaps some members of the Hong Kong upper class have been “spoiled” for so long that any minimal measure of introducing the progressive rating system has been seen negatively.
Other areas of the budget cover the government’s commitment to boosting the development of innovation and technology, such as more support for start-ups and technology investment, the promotion of life and health scientific research, the enhancement of research and development, the promotion of technological application, and the consolidation of the intellectual property regime.
In the realm of maintaining and strengthening Hong Kong as an international financial center, the government prepares for the return of many China Concept Stock companies to Hong Kong, offering more flexibility for issuers who seek listing in the Hong Kong stock market. The existing Steering Committee on Bond Market Development has recommended the enhancement of the bond market’s landscape, the improvement of market infrastructure and the promotion of the bond market, including the issuance of green bonds, Renminbi bonds and Hong Kong dollar bonds.
Moreover, a Greater Bay Area (GBA) investment fund will be set up with HK$5 billion to focus on investment opportunities in the GBA.
Although the government has made tremendous efforts at stimulating the economy, it has realized that the HKSAR is affected by a brain drain in which more professionals and young people have been emigrating to other countries. As such, replenishing the talent pool is of primary importance in the HKSAR. The budget speech points to the refinement of the “quality migrant admission scheme” in which several professions are added, including professionals in compliance in asset management; financial professionals in Environmental, Social and Governance; experts in “medical and healthcare sciences;” professionals in “microelectronics,” “integrated circuit design” and “arts technology;” and legal and dispute resolution professionals (section 140).
In conclusion, the budget speech delivered by Financial Secretary Paul Chan has adopted not only the traditional principle of maintaining financial prudence, but it also demonstrates the HKSAR government’s determination to relieve the hardship of the people and social enterprises. Moreover, an element of the progressive rate system is surfacing in the HKSAR. At the same time, the rental enforcement moratorium is an appropriate move to relieve the hardship of the small businesspeople. It is hoped that the society of Hong Kong will remain united in understanding and implementing the prudent and progressive budget plan prepared by the HKSAR government.