HONG KONG: Hong Kong is facing its toughest fiscal test in three decades following a painful run of mammoth deficits, with experts urging the government to make careful cuts as the economy wobbles.
The Chinese finance hub last saw a string of deficits after the Asian financial crisis in the late 1990s – but their scale was a fraction of the HK$252 billion (US$32.4 billion) shortfall in the 2020 to 2021 fiscal year.
Hong Kong has recorded annual deficits exceeding US$20 billion in three of the past four years, according to official figures.
The city’s finance chief Paul Chan said on Sunday (Feb 23) that the deficits were caused by “multiple internal and external challenges” and that a new budget unveiled on Wednesday will tightly control public spending.
While Chan earlier predicted a return to surplus in “three or so years”, a former government minister told AFP that the situation is “not just due to economic cycles” spurred by the coronavirus pandemic.
“If you look at Hong Kong versus other economies in the region, for example Singapore, those other economies have done much better,” said Anthony Cheung, who oversaw transport and housing policies.
Adding to the headache is the exodus of companies and high-paid workers as the city’s international reputation took a hit after Beijing quelled anti-government protests and imposed a sweeping national security law in 2020.
Singapore and Hong Kong suffered towering deficits in 2020 because of the pandemic, but the former has been able to keep spending relative to income in check as firms shift there from the Chinese city, helping it outperform its fiscal targets.
The challenge for Hong Kong is not just to balance its books, but to find fiscal sustainability amid US-China tensions and a slowdown in the world’s second-largest economy, Cheung said.
“In the past, we assumed that Hong Kong was geopolitically well-positioned … Now we have to be more careful about such presumptions.”
PLUNGING LAND SALES
Hong Kong is required by its mini-constitution to “strive to achieve a fiscal balance” – a holdover from British colonial rule that kept the market mostly free from government intervention.
After returning to China in 1997, it kept taxes low and refilled its coffers with the help of land-related revenue, selling land to developers with deep pockets.
