Hong Kong on Wednesday unveiled its budget for the coming 2023-24 fiscal year, attempting to wow investors, visitors and citizens. While doling out cash giveaways and breaks on tax and rates, the government did not address the brain drain that is causing the city's best and brightest to flee under the harsh grip of totalitarian Beijing rule.
The headline for "Mr. and Mrs. Chan" in the street is that the government will hand them each HK$5,000 (US$637) in spending vouchers, although that's half the HK$10,000 in giveaways from last year. Non-residents will get HK$2,500. Who doesn't like free cash?
It might be better to invest that money in ways that would stimulate the economy long term and make Hong Kongers want to stay. The city lost a net 113,200 residents in the year through mid-2022 as I explained when those numbers came out, causing the Hong Kong population to shrink 1.6%. Prospects are particularly bleak for young people, who often leave to study and don't come back, exacerbating one of the world's oldest populations, median age 45.6 years.
Financial Secretary Paul Chan Mo-po says the budget is designed to portray an image of "Happy Hong Kong." But pretending to the world that Hong Kongers are happy doesn't make them happy. Many people don't see a future in this city as the Beijing dictatorship sheds any pretense of governing in a hands-off manner, as originally promised.
The government offered no word on scrapping its mask mandate so that its public relations team could take pictures of all those smiling, happy Hong Kongers. Masks are supposedly an "emergency" measure, required for citizens everywhere they go outside the home. However, we're told this Covid emergency rule must now remain at least through flu season, an annual event that's hardly a sudden health emergency.
The mask requirement remains despite the city's leader, Chief Executive John Lee Ka-chiu, insisting that Hong Kong has "no restrictions whatsoever." You get a HK$5,000 fine if caught bare-faced. Kiss that free money goodbye...
There was also no word about scrapping so-called "cooling" measures imposed on the property market, with transaction taxes on quick sales and limits on mortgage financing. Property values declined 15.6% last year, so prices are in freefall, with transactions down 40% as a result. Falling prices encourage prospective buyers to sit back and wait, while many sellers simply have taken their places off the market. As a result, more than 90% of residential purchases last year went to first-time buyers, mainly of new homes.
The one concession was to reduce stamp duty for first-time buyers only on homes under HK$9 million. Commercial brokerage JLL noted the change will mainly apply to buyers of "nano" tiny apartments, running against the government's goal of encouraging developers to build bigger flats.
"It should be a good time to adjust the market by relaxing the cooling measures," Joseph Tsang, the chairman of JLL in Hong Kong, said. But, he added, "As the government has not relaxed measures in this situation, I believe there will be little chance of relaxation in the future."
Investors were underwhelmed. The Hang Seng Index fell at the open, briefly crossed into positive territory as Chan delivered his speech to Hong Kong's Legislative Council, then resumed its drift lower in the afternoon as his pronouncements settled in. The Hong Kong stock benchmark ended the day down 0.5%, and is now down 10.0% from its peak on Jan. 27, its highest level in a year. Since October lows, it had shot up 54.4% on the promise of China's economic reopening. That's after Hong Kong led the world in stock losses in 2021, down 14.1%, and then netted an even-bigger 15.5% decline in 2022.
The Hong Kong government is unpopular and inept. But because the public doesn't vote for the pro-Beijing politicians who populate its ranks, there's no way of getting rid of them, either.
This is what the administration thinks is a catchy subtitle for the budget: "Leaping Forward Steadily, Together We Bolster Prosperity Under Our New Vision." What is that vision? Who is "we"? How can you leap, steadily? None of that is clear, despite Chan's 2-½ hour address.
The government has decided there will be no independent review of its response to Covid-19. While this could be an opportunity to learn lessons and develop better plans in case of future outbreaks of disease, the administration and civil service would rather ignore any flaws that the whole three-year episode exposed, pretending everything was "as good as it gets."
The budget sets aside HK$100 million (US$13 million) for "mega events" that appeal to tourists and another HK$250 million (US$32 million) for the Hong Kong Tourism Board, some of which will go toward food festivals and the like. It just launched early this month a "Hello Hong Kong" scheme to bring visitors from mainland China and the rest of the world to the city.
The Financial Secretary forecast that the Hong Kong economy will grow between 3.5% and 5.5% this year, a "visible rebound," and average gains of 3.7% every year from 2024 to 2027. That's exceptionally optimistic. The economy had been growing 2.8% in the decade prior to the pandemic. Inflation should remain under control, around 2.5% per year in the years ahead.
The Hong Kong government is in the enviable position that it normally runs a surplus, with no military to fund and plentiful income from duties on stock and property trading. However, it has run a deficit during the pandemic, forecasting that the deficit will hit HK$140 billion (US$18.0 billion) this fiscal year, which in Hong Kong runs through March. To help narrow that deficit, the government will slap soccer betting with a HK$12 billion (US$1.5 billion) tax over the next five years, imposing that on the Hong Kong Jockey Club, which has a monopoly on gambling in the city.