LegCo Secretariat releases Research Brief on "The 2023-2024 Budget"
The Legislative Council Secretariat (the Secretariat) today (March 30) released a Research Brief on "The 2023-2034 Budget".
The Financial Secretary delivered the first Budget of the current-term Government on February 22, 2023. The fiscal landscape of Hong Kong has been profoundly reshaped by COVID-19 in recent years, resulting in depletion of fiscal reserves by HK$353.6 billion or 30 per cent from the peak in March, 2019 (see Annex 1). The total loss in reserves could have hit HK$564.9 billion or 48 per cent, had it not been proceeds from bond issuance and the balance brought back from the Housing Reserve. The existing stock of reserves is enough for just 12 months of government expenditure, the lowest level in at least 27 years.
Tighter fiscal situation leads to a smaller package of one-off relief measures this year, with its value halving to 2 per cent of Gross Domestic Product ("GDP"), down from 2.8 per cent to 4.6 per cent of GDP in the preceding three epidemic years. Given that the median household income of the bottom three quintiles of families in 2022 was still down by 3 per cent to 11 per cent from the pre‑epidemic level in 2019 (see Annex 2), it raised concerns that the relief measures may be too small to relieve the financial pressure faced by grassroots and middle‑income families.
The stimulus effect of the second round of disbursement of consumption vouchers of HK$10,000 was muted last year, partly due to the protracted fifth wave of COVID-19 (see Annex 3). Yet the outlook for the third round of consumption vouchers of HK$5,000 seems to be more positive in 2023, as Hong Kong is returning to normalcy and as the macroeconomic environment is more benign. Those hesitant consumers may be emboldened to spend this year and may even unlock their earlier savings, releasing the pent-up demand.
There are concerns in society over increased government debt in recent years. There has been increased issuance of green bonds in Hong Kong, with its outstanding balance as a ratio to GDP rising from 0.3 per cent to 4.3 per cent in four years. According to the International Monetary Fund ("IMF"), Hong Kong was actually one of the few advanced economies without any net government debt in 2022. While this showcases the fiscal strength of Hong Kong, critics caution against following the debt-laden path of the western economies.
The public is concerned about fiscal sustainability in the longer term, in the face of successive years of fiscal deficits, steep depletion of reserves, rising government debts and a narrow and volatile tax base. In spite of policy reviews conducted from time to time, so far there has been no major initiative launched to broaden the tax base, conceivably due to the prudence not to put the acclaimed cornerstone of "low, simple and competitive tax system" into risks. While there are renewed calls in society for local tax reforms in the face of protracted deficits, IMF also recommends a "comprehensive tax reform" in Hong Kong to broaden its tax base and to rebuild fiscal buffers.
The Legislative Council (LegCo) will resume the Second Reading debate on the Appropriation Bill 2023 at its meeting of April 26 and Members will speak on the Bill.
The Research Brief is prepared by the Secretariat's Research Office of the Research and Information Division with a view to enhancing information support for Members. It is a concise summary aiming at explaining a subject matter which may be of interests to Members and the general public. The Research Brief is now available on LegCo website
Ends/Thursday, March 30, 2023
Issued at HKT 14:22
Issued at HKT 14:22