The Hong Kong government may face a larger deficit than expected this year, finance minister Paul Chan has said, citing poor land sales amid a struggling property market.
Speaking on a Commercial Radio programme on Sunday, Chan attributed the shortfall to weak land sales, totalling only HK$10 billion during this financial year thus far. Originally, Hong Kong had hoped to reach HK$85 billion in land sales and land premiums by the end of the financial year in March 2024.
But he added that the city’s financial situation will remain stable in the mid to long-term.
Land sales
Chan’s remarks came after the government announced it will only auction one plot of land this quarter. Secretary for Development Bernadette Linn said the 1.9-hectare Lantau Island site is expected to accommodate 110 private homes.
In February, Chan forecast a deficit of HK$54.4 billion for the 2023-24 financial year. He also projected that fiscal reserves would decrease to HK$762.9 billion – the equivalent of 12 months of government expenditure.
The finance chief said he would be “pragmatic” in deciding whether to rein in “spicy measures” introduced a decade ago to combat rampant property speculation — a move that struggling property developers have been calling for.
“We will consider this pragmatically, with reference to market conditions and the environment in which the policy was formulated,” he said.
Tourism still behind
Chan was speaking just days after the National Day “Golden Week,” which saw some 1.1 million visitors come to Hong Kong from mainland China. But tourism figures are still lagging behind pre-pandemic levels, Chan said.
He said that tourism figures were still at 70 to 80 per cent of pre-pandemic levels, while retail sales had rebounded to 90 per cent.
Chan added that large scale events such as the Hong Kong Fintech Week and International Financial Week would help drive tourism: “If people think that Hong Kong is fun, has good food, is a good place to make money, and safe, they will come.”
Corporate taxes
Chan said corporate taxes would make up for the shortfall in land sales revenue and help ease the government’s financial woes, adding that the authorities would collect HK$15 billion from “strategic enterprises” every year, starting from 2026 or 2027.
About 30 of those enterprises have expressed interest in settling in Hong Kong, Chan said, adding that they were among about 200 companies that the Office for Attracting Strategic Enterprises has reached out to since the dedicated office was established last December.
“It’s the first step that’s the hardest,” he said.
Firms long established in Hong Kong were among the 30 “strategic enterprises” that Chan said were attracted to the city following the government’s move to draw international Innovation and Technology (I&T) companies. Most of them came from mainland China.
Those companies are in various fields including medical technology, financial technology and artificial intelligence, Chan said. He said that some of them were planning to hold events in the city – a move that showed their confidence in investing locally.
Hong Kong’s economy also continued to be affected by “external factors” such as high interest rates imposed by the US federal reserve, he said.
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