Hong Kong's Economy: Budgetary Measures Amid Stagnation

Hong Kong has unveiled a series of new measures in response to significant financial challenges, including a declining property market, increasing fiscal deficit, and slowing business activity. The budget combines stringent expenditure controls with limited but targeted investments aimed at stabilizing the situation and fostering recovery.​

Reduction in Property Taxes

Financial Secretary Paul Chan presented a plan that integrates spending cuts, enhances investment appeal, and promotes innovation, while maintaining social safeguards. One of the budget's central elements is the reduction of stamp duty for properties priced up to HK$4 million (approximately $515,000), which accounts for about 15% of all real estate transactions. These properties will now incur a minimal tax of HK$100 ($12.80), down from the previous rate of up to 1.5% of the property's value. This initiative aims to revitalize the lower segment of the property market, which has remained stagnant despite the lifting of previous restrictions and relaxed mortgage requirements. Since 2021, housing prices have declined by 27%, nearing 2016 levels. ​
Reuters

Deficit and Austerity Measures

Real estate has traditionally been a key revenue source for Hong Kong's budget. However, income from land sales has plummeted from a record HK$165 billion ($21 billion) in 2018 to just HK$13.5 billion ($1.73 billion) currently. This decline has significantly contributed to the third consecutive annual budget deficit, projected at HK$87.2 billion ($11.1 billion) for the 2024/2025 fiscal year, substantially exceeding initial forecasts. ​

To offset the revenue shortfall, the government plans to reduce expenditures by 7% over the next three years. This includes cutting 10,000 civil service positions (over 5% of the total workforce) within two years and freezing salaries. Additionally, certain fees will be increased: the air passenger departure tax will rise from HK$120 to HK$200 ($15-$25), and charges for tunnel usage and traffic violations will also see hikes. ​

Investments in Development

Despite limited budgetary resources, the government is making strategic investments to foster new growth areas. Plans include allocating HK$1 billion ($128 million) to establish an artificial intelligence research center and HK$10 billion ($1.28 billion) to a fund for investments in promising industries. Although these amounts are modest compared to similar programs in other developed economies, they reflect Hong Kong's commitment to maintaining its competitiveness in science and technology. ​

Concurrently, the budget maintains a focus on developing the Northern Metropolis—a large-scale project to create a cross-border tech hub near Shenzhen. Plans include constructing housing, railway infrastructure, a university, and initiating pilot land sales in 2025. This project is positioned as a key element of the long-term development strategy, with bond issuance planned to finance it. ​

The proposed measures and investment projects lay the groundwork for recovery but are unlikely to mitigate all external and internal risks. These challenges are compounded by ongoing geopolitical tensions. Given monetary constraints—Hong Kong's dollar is pegged to the U.S. dollar and influenced by Federal Reserve actions—the government has limited maneuvering room, making budget consolidation the primary option. ​

The International Monetary Fund highlights persistent risks related to U.S.-China trade tensions and a prolonged property market downturn. Additionally, high U.S. interest rates compel the Hong Kong Monetary Authority to maintain a tight monetary policy in line with the Federal Reserve, limiting options for independent monetary easing. ​

While rating agencies have not yet expressed alarm, long-term risks remain. According to Fitch Ratings analyst George Xu, Hong Kong's overall government debt is significantly lower than in other regions with an "AA-" rating. The city's financial reserves remain substantial—HK$664 billion or about $85 billion (approximately a quarter of GDP)—serving as a crucial factor for financial stability. ​

The 2025 budget seeks to balance expenditure reduction with economic stimulation through tax incentives and selective investments. Implementing this strategy will require Hong Kong to be flexible amid external pressures, stabilize the property market, and restore investor confidence. Despite limited resources, the government remains committed to financial stability and supporting promising development areas.