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Let’s grow the pie together

Time flies and we are already halfway through December. The annual Budget consultation exercise has begun, and we are now gathering views from members of the public and various sectors of society through different channels (note). The opinions and suggestions you give from different perspectives will allow us to have a fuller understanding of the actual needs of society, enabling us to come up with reasonable and pragmatic proposals that seek to balance the interests of different sectors given the constraints and challenges we face. Your views will serve as important reference for us in preparing for the upcoming Budget to be announced on 28 February 2024.

I believe that we all have some basic ideas of the situation of the macroeconomic environment and public finance next year. The external environment is fraught with challenges. In the year, we lowered our full-year forecast for Hong Kong’s economic growth. In view of the substantial increases in government expenditure over the past few years and the real pressure on public finance, we will need to consolidate our expenditure and exercise more prudent control. That said, it is imperative to cater for the needs of the community and the underprivileged groups as well as to invest for our future. Therefore, we must open up new horizons through accelerating economic growth. Simply put, we must grow the pie. That means pursuing development to foster growth, which will open up new room and let us have new resources to address various needs. We must make an all-out effort to drive economic growth, strive for development and bring tangible benefits to the people, thus making our economic pie bigger and better, with greater diversity and resilience. We will also need to achieve more inclusive development to allow members of the public to benefit.

Since the full resumption of normal travel with the Mainland and the rest of the world early this year, Hong Kong has embarked on the road to post-pandemic normalcy. The economy is registering positive growth, while the job market is improving and inflation is mild. However, such factors as high global interest rates, geopolitical tensions and adjustments to the supply chain have put pressure on the momentum of our economic growth. The asset market has remained weak. Government revenue has therefore been inevitably affected. In particular, stamp duties on stock transfers and property transactions as well as land premium fell substantially short of the estimates made at the beginning of the year. For 2023-24, after taking into account the proceeds from bond issuance, the consolidated fiscal deficit of the Government is expected to be slightly over $100 billion, higher than the $57 billion forecast when the Budget was announced early this year. Looking ahead, the geopolitical situation will remain complicated and volatile next year, which will place a drag on Hong Kong’s economic growth, and make it difficult for our asset market-related revenue to come back strong quickly. Therefore, the possibility of registering deficit for another year cannot be ruled out.

In fact, excluding the money spent on anti-epidemic measures and counter-cyclical measures rolled out to stabilise the economy during the pandemic, government expenditure rose by about 40% from over $470 billion in 2017-18 to over $660 billion in 2022-23, far exceeding the increase in government revenue over the same period. During this period, the Government has logged deficits for three years, with our fiscal reserves dropping from $1,102.9 billion to $834.8 billion.

The significant rise in government expenditure over the past few years has indeed enhanced public services and benefited the community. However, government expenditure, after a period of rapid increase, must undergo a process of consolidation during which effective control and even a proper reduction of expenditure are unavoidable. This is essential to maintaining healthy public finances as well as ensuring sustainable and steady economic and social development.

The Government will continue to maintain zero growth in the civil service establishment this year. A Productivity Enhancement Programme has also been implemented, under which bureaux and departments are required to cut 1% of their recurrent expenditure in 2024-25 and a further 1% in 2025-26. The resources thus spared would be re-allocated internally for enhancing existing and introducing new public services.

In controlling the growth of expenditure, we will carefully consider and balance the needs for social and economic development, in particular the conditions of the most vulnerable and needy in the community.

The most effective and practical way to increase government revenue is by growing the economic pie and driving up revenue through economic development. We must continue to make ourselves more competitive, seek new breakthroughs and develop new areas of growth. It is the only way for Hong Kong to achieve a higher, faster and more sustainable growth.

In terms of promoting economic development and enhancing competitiveness, we have been actively nurturing and developing new industries, establishing new partnerships, attracting new capital and opening up new markets over the past year. For instance, we have achieved some progress in attracting strategic innovation and technology (I&T) enterprises to Hong Kong. These enterprises will bring in considerable investment and jobs, and attract the upstream, midstream and downstream partners of their respective industry chains to the city. All this would help enrich our I&T ecosystem and facilitate the accelerated development of our various industries. With these enterprises flourishing and making profits in Hong Kong, they will bring additional tax revenue to the Government. Moreover, we are committed to enhancing the competitiveness of our financial market on all fronts, by further deepening mutual access between Hong Kong’s and the Mainland’s financial markets, and strengthening co-operation with the Middle East and ASEAN regions. I am sure that we are heading in the right direction on the road to long-term economic development, but we must still work harder and go full steam ahead.

Although Hong Kong is now facing various challenges, past experience has told us one thing – the greater the challenge, the bigger the opportunity. I am convinced that as long as we plan ahead and work in concert, leverage our strengths and make the best use of resources, we will surely be able to open up new horizons for the city.

Note: Members of the public may share their views on the 2024-25 Budget through the following means -

Dedicated website: www.budget.gov.hk
Dedicated Facebook page: www.facebook.com/BudgetGovHK
Email: budget@fstb.gov.hk
Telephone: 2810 3768
Fax: 2147 5770
Post: Budget Consultation Support Team, 24/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, Hong Kong

December 17, 2023