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Supporting each other on the same boat

Last Wednesday, I announced the Budget for the coming fiscal year, which continued to adopt countercyclical fiscal policy and covered a series of one-off measures and commitments amounting to HK$ 170 billion. The Budget initiatives mainly focus on four areas: (1) supporting an all-out effort to win the fight against the epidemic; (2) relieving the hardship of our people and SMEs; (3) fostering post-epidemic economic revival; and (4) investing for the future by planning ahead for the medium- and long-term development of our economy.

Last Wednesday, I announced the Budget for the coming fiscal year, which covered a series of countercyclical measures amounting to HK$ 170 billion.

In the face of the severity of the current wave of the epidemic, economic sentiments have weakened and some sectors are under intense pressure. The economic performance in this quarter is not optimistic. Supporting our people and SMEs is key to protecting our society. Social stability hinges on the safeguarding of the health, lives, livelihood and income of the 7 million plus people in Hong Kong. With over 300 000 SMEs in Hong Kong employing 45% of the workforce in the private sector, supporting SMEs is core to the economic stability of Hong Kong.

Against such background, the Budget adopted a multi-pronged approach to preserve and support our SMEs, including easing their costs, supporting their cash flow and boosting the market. The Budget proposed a series of taxes and fees reduction, including reduction in profits tax and rates, as well as waivers and concessions of government fees and charges, which could help lowering the operating costs of SMEs. In order to support the cash flow of SMEs, we have proposed the rental enforcement moratorium and enhanced the Special 100% Loan Guarantee product under the SME Financing Guarantee Scheme. By disbursing the second batch of consumption vouchers by phases in summer time, it could help continuously boosting market consumption power and consumption demand. Consumption vouchers and a variety of tax reduction and relief measures proposed in the Budget, including the newly proposed tax deduction for domestic rental expenses, will also provide support to individuals.

While taking prompt action to stabilise the epidemic situation is the overriding mission at present, it is also important for us to stabilise the economy and confidence. The outbreak of the epidemic and the tightened social distancing measures have hit many SMEs hard and dampened their confidence in the economic outlook. For sectors that are severely impacted, such as the catering sector, some businesses have temporarily suspended their operation while some have even closed down. When revenue amounts to only 20% to 30% of the usual level or has dropped to zero, the burden of the already high rental payment is even heavier. We have appealed to big property developers and landlords to consider lowering rent or adjusting the rental structure as far as possible, with a view to helping SMEs ride out of the storm. The response however has been far less than satisfactory. With the onset of the latest wave of the epidemic, more SMEs are in dire situation.

Operation costs for businesses, particularly rental expenses, have been high in Hong Kong. In the past, it has been left for market’s self-adjustment. However, the Hong Kong economy has plunged into a frozen state due to the latest epidemic situation and the SMEs are on the brink of mass closing of businesses. This will deal a severe blow to the employment situation, undermine people’s confidence and bring social instability.

Against this consideration, I announced in the Budget that we will expeditiously 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. The relief will be valid for three months. In addition to the 17 categories of premises listed under the Anti-epidemic Fund such as child care centres, tutorial schools and laundry shops or workshops, the specified sectors will include sectors that are hard hit by the epidemic such as retail stores and interest classes. We believe that when the epidemic has stabilised and the business environment has improved, the business and cashflow of enterprises will gradually return to normal and they will by then have the ability to gradually re-pay the due rental expenses. The arrangement is necessary at difficult times like now. Through setting up a moratorium period, we hope that we could buy time for SMEs to resolve their difficulties and provide them with breathing space, with a view to avoiding a domino effect of business closure.

This measure does not prohibit landlords from collecting rents, but only slightly delays the collection. It does not encourage tenants not to pay their rents, but only aims to provide relief to the enterprises, particularly SMEs which cannot afford the severe pressure within a short time. If everyone could make a step to support our SMEs, we could also support the livelihood of the employees and their families.

Some small merchants have reflected that since the announcement of this measure, some of those who had been extremely pessimistic turned to feel a bit relieved and started planning for how to stay afloat in the coming few months. Some merchants reflected that more landlords has shown willingness to discuss on rental reduction. I also noticed that since the announcement of this measure, a developer has responded to our appeal to provide rent waiver to its tenants which are required for closures under Government’s restrictive measures until 20th April.

I hope that more able developers and big landlords can shoulder their social responsibilities in supporting our SMEs by sorting out a mutually-acceptable plan for both sides. This is not a zero-sum game. We are all on the same boat and this is the time we need to show our support to each other.

Curbing the epidemic is the overriding mission at present, and it requires the whole community to join hands and work together. Many organisations have recently responded to the appeal by making donations to show their care for the society. Their care indeed could also be shown through provision of rent waiver or reduction to tide our SMEs over the current testing time. This could help our society in stabilising the economy and preserving jobs, and give the most solid commitment to the work of curbing the epidemic.

To ensure the smooth implementation of the rental enforcement moratorium arrangement, we plan to put forward the following measures: (1) deferred payment of rates can be arranged for properties affected by this measure; (2) the legislation will stipulate that if owners fail to repay their mortgage on schedule as a result of their rental income being impacted by the measure, repayment moratorium by banks will apply; (3) for elderly owners relying on the rental income from a single property to earn a living, the Government will provide them with lending at an amount up to three months of the rental, subject to a ceiling of HK$100,000.

Some may be concerned that this measure will affect the commercial operation or the contractual spirit of our market. Nonetheless, some overseas markets such as the UK, Australia and Singapore had put in place similar measures when their economies were hard hit by the epidemic. It showed the necessity for governments to put protecting the economy and social stability as the top priority at critical times. The rental enforcement moratorium will last only for three months, which is an exceptional action in exceptional times.

To enhance the operation of this proposal, we will continue to gauge the views of different stakeholders. At the same time, we wish everyone could put the welfare of the whole society first, helping to support our economy and preserving our SMEs and people’s livelihood. Living under the same roof, I hope all of us could contribute our part and support each other with mutual understanding in this testing time.

The drafting of the legislation for the rental enforcement moratorium is being conducted in full speed, with a view to providing short-term support to the operation of specified sectors at this critical time. After the completion of the drafting work, the legislation will come into effect only after the respective approval of the Chief Executive in Council and the Legislative Council.

February 27, 2022