Hong Kong is gearing up to reveal its budget for the fiscal year 2024-2025, reflecting an economy that is gradually gaining traction despite facing several challenges. With China's uncertain recovery, global economic turbulence, and a struggling property market, the city is navigating through a complex financial landscape.
Recovery Progress
Financial Secretary Paul Chan acknowledges that the growth trajectory is showing signs of improvement, yet falling short of initial expectations. Given the volatile external environment and Hong Kong's vulnerability as a small, open economy, continued hurdles are on the horizon.
Budget Expectations
Anticipated measures within the upcoming budget are anticipated to focus on bolstering Hong Kong's competitive edge, a crucial step in reinforcing its comeback.
Deficit Projection
Forecasts indicate a significant fiscal deficit for the year ending in March, with KPMG estimating a deficit of HK$130 billion for the fiscal year 2023-2024. This would be a notable increase from previous projections, reflecting the necessity for heightened spending amidst challenging economic conditions.
Resource Utilization
Experts suggest that leveraging reserves can be instrumental in enhancing Hong Kong's competitiveness. John Timpany, head of tax at KPMG China, highlights the potential of utilizing fiscal reserves to incentivize regional headquarters establishment in the city, ultimately bolstering the economy and fortifying its position as a regional hub.
As Hong Kong braces for the unveiling of its budget, the focus remains on strategic initiatives aimed at fortifying its economic foundations and paving the way for sustained growth in the coming fiscal year.
Hong Kong's Fiscal Reserve Projections
KPMG vs. PwC Projections
KPMG estimates Hong Kong's fiscal reserve to be HK$705 billion as of end March 2024, while PwC projects it to be HK$724.8 billion, equivalent to around 11 months of expenditure.
Capital Stimulus Measures
On the agenda are measures aimed at spurring more investment in Hong Kong. Initiatives to promote investments in key sectors and roll out additional measures to attract quality investments in the city are crucial, according to PwC South China and Hong Kong Tax Leader Charles Lee. He suggests focusing on accelerating the expansion of Hong Kong's tax treaty network and alleviating the burden faced by large multinational enterprises in anticipation of the upcoming global minimum tax rules.
Cultivating The Green Economy
Fostering the green economy is seen as another avenue to tap into sustainability-focused investments, as highlighted by CPA Australia. The organization also advocates for increased support for small and mid-sized businesses and a comprehensive review of the tax system.
Economic Outlook
The spotlight will also be on comments regarding the current state of the economy and what lies ahead. Anticipated final fourth-quarter GDP data, set to be released on Wednesday, is expected to align with advance estimates showing growth driven by tourism and personal consumption. Real GDP growth for the 2023 calendar year is estimated at 3.2%, marking a reversal from the contraction in 2022 but falling short of consensus views.
Market Expectations
A promising budget could provide a much-needed boost to the stock market, particularly benefiting sectors such as property and financial services. The benchmark Hang Seng Index has experienced a downward trend over the past year, with losses exceeding 15% over 12 months. Despite this, recent gains have seen year-to-date losses narrow down to 1.5%.
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