Hong Kong Financial Secretary, Paul Chan Mo-po, delivered his speech on the Hong Kong Government’s 2020/21 Budget (the “Budget”) today, proposing a number of relief measures amounting to $120 billion, which include tax incentives and funding for the sectors such as innovation and technology, healthcare and tourism. Such measures aim to revitalise the city’s economy and safeguard employment amid the outbreak of coronavirus epidemic.

William Chan, tax partner at Grant Thornton Hong Kong, said, “We applaud the Government’s acknowledgement of the needs to optimise tax regime and its efforts to address the pressing healthcare and economic issues, striving to give the citizens much-needed confidence booster when the local economy is plagued by external headwinds and epidemic outbreak. Yet, long-term plans to stay ahead of competition and drive sustainable development of Hong Kong’s economy are still lacking. Despite Hong Kong has recorded its worst budget deficit in 15 years, Hong Kong still sits on massive fiscal reserves. We urge the Government to make good use of the reserve stockpile to introduce comprehensive measures to enhance worker skills and boost the global competitiveness of Hong Kong’s economy in a persistent manner.”

Speed up economic transformation
In this year’s Budget, one of the major expenditure items is related to innovation and technology sector. With the first batch of R&D centres expected to be set up progressively this year, the Government plans to establish a third InnoHK research cluster to promote research and development. The Government will set up a HK$200 million Green Tech Fund to support the R&D and application of decarbonisation and green technologies, as well as the sharing of R&D findings. In addition to earmarking HK$3 billion to take forward Phase 2 of the Science Park Expansion Programme, the Government will inject HK$ 345 million for a pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.

Mr. Chan said, “We appreciate the Government’s initiatives to bolster the innovation and technology industry by increasing spending on research and development. However, little progress has been made in developing the city into an international innovation and technology hub. Hong Kong’s economy still depends heavily on traditional industries, namely financial services, tourism, trading and logistics, which make the city vulnerable to an economic downturn. As the global talent race is heating up, the Government should step up its talent acquisition efforts by introducing more welcoming policy and creating a better living environment to attract and retain global technology talents. Hong Kong should also accelerate the development of fintech and biotechnology, capitalising on the tremendous business opportunities arising from the Greater Bay Area development initiative.”

Immediate relief measures to stimulate economy
To mitigate the negative impact of the coronavirus outbreak on people’s livelihoods and the business sector, the Financial Secretary will reserve HK$18 billion to relieve the burden of enterprises and stabilise employment. Every permanent resident aged 18 or above will be entitled to HK$10,000 cash. The Government will offer full guarantee low-interest loan to help small and medium enterprises ease their cash flow problems, with a ceiling of HK$2 million. The Budget also proposes 100% profit tax reduction for 2019-20 assessment year, capped at HK$20,000.

“We suggest the Government implement the relief measures in a targeted manner while streamlining and expediting the application procedures in order to avoid more store closures and enterprise bankruptcies. While distributing consumption vouchers is considered a more effective way in boosting domestic consumption and promoting local economic activities, handling out cash is the simpler and quicker way to benefit the citizens. Besides, we would like to see more targeted measures to help the N-nothing community”, said Mr. Chan.

Pressing need to tackle problems of public healthcare system
In response to the long-standing public healthcare concern, the Budget will provide recurrent funding of HK$75 billion to the Hospital Authority this year, representing an increase of 35% from 2017-18. An additional HK$3.6 billion will be allocated to retain talents in the 5-year period starting from 2021-22. The Government will also set aside HK$600 million to subsidise the establishment of smaller interim “District Health Centre (DHC) Express” by non-governmental organisations in 11 districts where DHCs have yet to be set up.

Mr. Chan said, “The epidemic has strained Hong Kong’s healthcare system and once again put the spotlight on the chronic problem of healthcare manpower shortage in Hong Kong. Given the growing imbalance between the supply of doctors and the demand of an aging population, we urge the Government to take prompt actions to tackle the doctor shortage. The Government could consider importing overseas medical specialists graduating from recognised institutions and require imported doctors to work under supervision for the first several years. Singapore has been a successful example as the country’s quality of medical services does not drop despite the significant portion of foreign-trained doctors. The Government should also make concrete plans to promote the development of primary care system, shifting the medical burden from hospital to the community by enhancing the role of family doctors who provide regular care for patients.”

Call for a holistic plan to support elderly well-being
In light of the aging population, the Government continued to allocate resources to strengthen elderly services. A total of 3,000 additional home care service quotas will be provided for frail elderly persons in the two years, while an additional 1,000 community care service vouchers will be issued to elderly persons with moderate or severe impairment in 2020-21. The government will allocate an additional HK$75 million to subsidised elderly service units for providing soft meals to elderly persons with swallowing difficulties. Moreover, the ceiling of the on-the-job training allowance payable to employers under the Employment Programme for the Elderly and Middle-aged will be raised to encourage employers to hire more elderly people.

Mr. Chan commented, “With rising life expectancy and declining labour force, the unprecedented demographic change is posing a major challenge for Hong Kong to maintain its economic competitiveness. In addition to the direct subsidy scheme, we recommend the Government to take a holistic approach to tackle the issues by ensuring sufficient health insurance coverage for the future elderly population and starting early to adapt the jobs and character of the economy for the aging population. More investment should be made on training and education for older people to encourage greater workforce participation. We believe that the Government should make no further delay in formulating polices that support the well-being of elderly people.”

Tackling the forecasted budget deficit
In the Budget, the Financial Secretary also forecasted an annual deficit in the Operating Account in each of the coming five financial years due to a higher growth in recurrent expenditure than that of revenue receipt. With the ageing population problem in Hong Kong and the increasing demand in public services, this is to be expected.

Mr. Chan concluded, “Although we still have ample fiscal reserves to support any increase in public spending, this is the time to perform a holistic review of the tax system to see if we need to address the source of revenue of the Government. In addition, given the pressures from Organisation for Economic Co-operation and Development (OECD), we will need to perform a full review of the current tax system to maintain our competitiveness and our ability to continue to attract foreign investment into Hong Kong.”