The 2021 Hong Kong budget contains measures touching on a broad range of sectors, including financial services, tourism, innovation and technology, and the digital economy. But while these are expected to support economic recovery, their implementation still needs to be worked out, according to PwC’s latest analysis.
The Government expects Hong Kong’s economy to return to growth in 2021, with GDP forecast to increase by 3.5 – 5.5%. The economy is expected to grow by an average of 3.3% per annum from 2022 to 2025. This is a big assumption. Whether this can be achieved depends on several internal and external factors, such as the local epidemic situation, the timeline for reopening the border to business and resumption of the free flow of people, and the pace of economic recovery in major overseas markets.
The relief measures to support enterprises and individuals in this year’s budget are less generous than last year’s. For example, the proposed profits tax and salaries tax rebates for 2020/21 will be capped at HK$10,000 instead of HK$20,000 as for 2019/20. The reduced scale of such sweeteners had been anticipated, given government forecasts of a record-high fiscal deficit of HK$257.6 billion for 2020/21, along with estimated deficits for each of the following five years. But the general public may expect the Government to do more to tide them over the current difficult period.
Instead of a cash pay-out of HK$10,000 similar to last year, the Government has announced that it will issue HK$5,000 electronic consumption vouchers in instalments to each eligible Hong Kong permanent resident and new arrival aged 18 or above. This will help stimulate local consumption and boost local retail activity, which the epidemic has hit hard. The new “Special 100% Loan Guarantee for Individuals” is a novel measure. But whether this is well received and meets its goal of providing temporary financial support to the unemployed will depend on how it is implemented and how complex the application process is.
PwC welcomed the Government’s initiatives in this year’s budget to develop Hong Kong’s financial services industry further. These include subsidies for costs associated with issuing green bonds and insurance-linked securities. There is also support for the listing of qualifying real estate investment trusts (REITs) in Hong Kong and investment funds set up in or re-domiciled to Hong Kong in the form of an open-ended fund company in the form of subsidies. Such incentives are relatively new in Hong Kong. PwC welcomes these moves by the Government, particularly in light of the BEPS 2.0 development (including the proposal of a global minimum effective tax), where tax incentives may not be as attractive to businesses as before. Apart from financial services, we hope the Government will consider providing incentives to other sectors that are strategically significant for the economic development of Hong Kong, such as regional headquarters and intellectual property hubs.
The budget also proposes an increase in stamp duty on Hong Kong stock transfers, to be payable by both the buyer and seller, from 0.1% to 0.13%. As a means of increasing government revenue, this measure will have relatively less impact on the general public. However, PwC recommends the Government conduct a thorough consultation with the financial services industry and consider the feedback received during the legislative process. Also, given that stamp duty on stock transfers is currently not imposed in most major international stock markets, PwC has urged the Government to revisit this situation at an appropriate time and consider adjusting the stamp duty rate in the future to make the Hong Kong stock market more competitive.
As in last year’s budget, the Financial Secretary has earmarked funds for fostering the development of different sectors. For example, HK$765 million will be allocated to the Hong Kong Tourism Board to revive tourism, and HK$9.5 billion will be injected into the Innovation and Technology Fund over a two- year period. Again, PwC believes that the appropriate allocation of Government funding is just the first step: to achieve government policy objectives, timely and effective execution is the key. Ultimately, Government bodies need to adopt a more commercial mindset and holistic approach when formulating and implementing policies and initiatives, and better coordination between government departments is required for smooth policy execution.
Paul Arkwright
Publisher
