The Hong Kong government must tighten its belt following increased expenditure during the Covid-19 pandemic, the city’s financial chief has warned ahead of the annual budget to be delivered next month.
It would be “inevitable” for the government to tighten the expansionary fiscal policy adopted in recent years during the city’s fight against Covid-19 and the resulting economic downturn, Financial Secretary Paul Chan wrote in a blog post published on Sunday. The city will transition from a “relatively liberal expansionary fiscal policy” to “moderately liberal,” he said.
The counter-cyclical measures put in place had depleted Hong Kong’s fiscal reserves to almost HK$800 billion, equivalent to one year’s worth of government spending, the official said. As the city enters a “post-pandemic era,” with most Covid curbs lifted and the gradual resumption of quarantine-free travel with mainland China, Chan said it was necessary to adjust the direction of fiscal strategy.
“Tightening the expansionary fiscal policy adopted in recent years is inevitable and necessary. The key is how to match the tightening of the policy with the economic reality, as well as how to help citizens, small-medium-enterprises and society accept the relevant adjustments more easily,” he said.
Chan’s remarks came ahead of his next budget speech scheduled for February 22. He said the biggest challenge in preparing the upcoming fiscal plan was that it was “necessary to cut expenses,” but it was “more important to increase income.”
He pointed to more than HK$600 billion spent on anti-epidemic policies and relief measures over the past few years, while various tax and government income shrank. The city saw a record high deficit of more than HK$200 billion in the financial year of 2020/2021, and the deficit in 2022/2023 may reach over HK$100 billion, Chan estimated.
“We will try to reduce the impact on underprivileged groups, but when it comes to areas where costs must be cut, it may lead to additional tax burdens that need to be shared. [I hope] people will understand, be considerate and supportive,” the official said.
On Saturday, the finance chief took questions about the upcoming budget from dozens citizens on a programme organised by government-backed broadcaster RTHK. The attendees were concerned about the sustainability of public finance, the progress of economic recovery and the pressing needs of people’s livelihood, Chan said.
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