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Some elaborations on the Budget

Last Wednesday, I announced the Budget for the 2021-22 fiscal year. I forecast a deficit of more than $250 billion for 2020-21, and also a deficit of over $100 billion for 2021-22, which is the second-highest deficit on record, just behind that of 2020-21. Our fiscal reserves has dropped sharply in two years from the equivalent of 23 months of government expenditure to 13 months, leaving limited room for relief measures.

Hong Kong’s overall economy contracted in two consecutive years and the unemployment rate is at a high level. I have decided to maintain a countercyclical fiscal policy and give a stronger boost to the economy through allocating additional fiscal resources. Through this, I wish to provide support to our people and enterprises, benefit the overall economy to the largest extent, and relieve the pressure on the job market.

Attending a press conference after the announcement of the Budget last Wednesday.

Taking the electronic consumption vouchers as an example. Even in the face of deficit of over $100 billion for two consecutive years, I have decided to issue electronic consumption vouchers with a total scale of $36 billion, with a view to stimulating consumption in the local economy. With its multiplier effect, we hope that local consumption could be boosted to the largest extent, and widely benefit our people and enterprises. Learning from overseas experiences, consumption vouchers that issued in instalment with a validity period may benefit more small enterprises, bringing them more businesses and also incentives to adopt e-payment, so that they can grasp the new business opportunities brought by technological advancement.

The design and the implementation details of the electronic consumption vouchers will affect user experience and the effectiveness of the scheme. Details such as the number of instalments and the amount to be issued in each instalment proposed are just preliminary ideas. I appreciate the feedback received over the past few days. When deriving the details of the scheme, including the application procedures and usage of the vouchers, we will consider carefully the views given by citizens and enterprises, and the need of those without digital wallet and people with limited mobility.

In fact, different arrangements will have their pros and cons and we have to make choices. It is understandable that we may not have a final proposal which satisfies all people’s wishes. Say, some people prefer that the full amount could be credited into the consumption voucher in one go for use, but some might think this will lead to bias towards larger companies. Some people prefer a longer validity period for the vouchers, but that may weaken the scheme’s effect on stimulating consumption. Nonetheless, when working out the scheme’s details, we will make our best endeavours to cater both user experience and scheme effectiveness after taking into account the technological capability of the stored value facilities operators concerned.

The electronic consumption vouchers scheme is designed to ensure that resources could focus on providing support to local economy, benefiting people and enterprises, and creating more jobs opportunities. In fact, both the indirect pulling effect generated by the consumption vouchers, as well as the direct allocation of $6.6 billion proposed in the Budget for providing 30 000 time-limited jobs, can help create jobs opportunities.

For the unemployed who face financial pressures under the epidemic, they may need loans to tide them over the difficulties. There are only limited options provided in the market, and the loan products available are usually charged with a higher interest rate, which in turn add burden to the borrowers. In view of this, I have suggested in the Budget to set up a Special 100% Loan Guarantee for Individuals Scheme to address the needs of these people. The scheme, as a supplementary measure, is to provide an extra financing option for the unemployed, but not as an alternative to temporary unemployment assistance.

In proposing the initiatives in this Budget, I have made the best effort to strike a balance between the demands and affordability of different parties, so as to provide support to the needs of the society while avoiding adding burden to people’s livelihoods. In raising the rate of Stamp Duty on Stock Transfers, I have also duly considered relevant factors such as the competitiveness and future development of Hong Kong’s financial market.

With the Country’s support and the SAR Government’s efforts, Hong Kong’s financial market has been flourishing. In view of the emerging economy and technological advancement, we amended the listing regime in 2018 to allow innovative technology companies with weighted voting rights structure and pre-profit biotechnology enterprises to list in Hong Kong, and facilitate China companies listed in other international markets to come to Hong Kong for secondary listing. By doing so, the composition of our stock market has started to go with the global development trend of tech-economy and the market capitalisation has increased by about a quarter. At the same time, the average daily turnover increased substantially from about $88 billion in end-2017 to nearly $130 billion in 2020, while the average daily turnover in January this year alone amounted to the record-high of $240 billion.

In fact, given the ample choices of companies with Mainland businesses or tech-companies from the Mainland, the free flow of capital and common law jurisdiction in Hong Kong, as well as our close connection with the Mainland stock market under the Connects Scheme arrangement, all these have contributed to the uniqueness and the core strength of Hong Kong’s stock market, which cannot be copied by other markets. With these unique advantages, our market has been growing robustly with surge in turnover volume, providing us the room to slightly adjust upward the rate of the Stamp Duty. Based on our proposal, only an extra $30 Stamp Duty is needed for each stock transaction at the value of $100,000, which should be a level affordable to general trading participants.

There have been some fluctuations in the Hong Kong stock market in the past few days due to external factors and price adjustment of individual stocks (particularly tech companies). This will not affect our judgement on the broader situation of Hong Kong’s market and our status as an international financial centre. In fact, a number of markets in the region, such as Tokyo, Seoul and Shanghai, have also shown downward adjustments of different extent over the past few days.

In making the decision of raising the rate, we have already carefully assessed and considered the potential impact which may be brought to the competitiveness of our market. We will continue to closely monitor the development of the situation and take it as a reference in future. Maintaining and enhancing our market’s competitiveness have always been the main considerations in our decision process. We will also continue to promote the diverse and robust development of our financial market.

February 28, 2021