Hong Kong's Budget Will Be One of Hard Trade-offs

Balancing the books after 3 years of deficit, finance chief has to be bold, even harsh

- Magdalene Fung

HONG KONG - Hong Kong's finance chief is trapped between a rock and a hard place in trying to take the city out of its third straight year of fiscal deficit.

Financial Secretary Paul Chan is set to deliver his annual Budget speech on Feb 26.

He has already disclosed that the deficit for the 2024/2025 fiscal year will be around HK$100 billion (S$17.1 billion). It was HK$100.2 billion the previous year, and HK$122.3 billion before that.

A persistent deficit could affect Hong Kong's credit rating, which would in turn deter investors, with long-term consequences for the economy.

Raising government revenue significantly looks unlikely, given the uncertain global outlook as US-China tensions worsen and a slowdown in the broader Chinese economy drags on.

So, making drastic cuts to public expenditure appears to be the most practical way to narrow the gap.

Mr Chan has said that he will focus on cost-cutting to take Hong Kong out of the red, which should take about three to four years.

Which way the axe falls – and how heavily – will reflect the authorities' priorities and may have far-reaching ramifications for the city's growth in the long run.

Mr Chan has already ordered all government departments to cut their spending by 1 per cent in the new fiscal year, which starts on April 1.

Meanwhile, the government still has to allocate spending on a diverse range of development areas – such as in innovation and technology – to ensure that the economy can continue growing sustainably into the future.

For a city that emerged from the economic gloom of Sars (severe acute respiratory syndrome) after 2003 to enjoy 15 straight years of budget surpluses until Covid-19 struck, Hong Kongers are still having to get used to hearing about cutbacks on Budget Day rather than handouts and subsidies.