Civil Servant Pay Freeze and Staffing Reductions

In a move to control expenditure, the government has confirmed a wage freeze for all civil servants, including the Chief Executive, politically appointed officials, parliamentarians, and judicial personnel. further cost-cutting measures include reducing civil servant staffing by 2% each year in 2026/27 and 2027/28. This reduction is projected to eliminate approximately 10,000 positions by April 1, 2027.

Public Transportation Fare Adjustments

The “Public transportation Fare preferential Plan for Elderly and Qualified Disabled Persons,” widely known as the “2 yuan ride discount,” will see some adjustments. While the eligibility criteria remain unchanged, the plan will now be limited to 240 trips per month. Fares of 10 yuan or less will continue to be charged at 2 yuan per trip. However, fares exceeding 10 yuan will be subject to a 2% discount.

Tax Relief Measures

The budget includes several tax relief measures aimed at easing the financial burden on individuals and businesses. For the 2024/25 tax year, salaries and personal income tax will be leniently taxed, with a maximum deduction of RMB 1,500. This measure is expected to benefit approximately 2.14 million taxpayers in Hong Kong. The deduction will be reflected in the final tax payable for the 2024/25 tax year,resulting in an estimated decrease of RMB 2.9 billion in government revenue.

Additionally, a 100% reduction in profit tax for the 2024/25 tax year will be implemented, capped at RMB 1,500. this initiative is projected to benefit around 165,400 companies in Hong kong. Similar to the individual tax relief, the deduction will be reflected in the final tax payable for the 2024/25 tax year, leading to a decrease of approximately RMB 200 million in government revenue.

Social Security and Rate Reductions

The government will allocate approximately RMB 3.1 billion to qualified individuals receiving social security funds, representing additional expenses of the same amount.

Residential properties will see a lenient rate for the first quarter of 2025/26, with a maximum reduction of RMB 500 per household. This measure is expected to involve approximately 3.12 million residential properties, reducing government revenue by about RMB 1.5 billion.Non-residential properties will also benefit from eased rates in the first quarter of 2025/26,with an upper limit of RMB 500 per household,affecting around 430,000 properties and decreasing government revenue by approximately RMB 200 million.

Furthermore, the upper limit of the property value for the stamp duty of 100 yuan will be increased from RMB 3 million to RMB 4 million, effective instantly. This change is projected to benefit about 15% of property transaction cases, reducing government revenue by approximately RMB 400 million per year.

Public Transportation Cost Subsidies

Starting in June 2025, the threshold for the public transportation cost subsidy plan will increase from RMB 400 per month to RMB 500. the government will provide a subsidy of one-third for citizens’ monthly expenditures exceeding RMB 500, while the monthly subsidy limit of RMB 400 will remain unchanged.This means that citizens with transportation expenses less than RMB 500 will not receive subsidies.

Increased Revenue Measures

To bolster government revenue, several measures are planned. The departure tax for aircraft passengers will increase from RMB 120 per passenger to RMB 200, starting in the third quarter of 2025/26.This is estimated to increase revenue by approximately RMB 1.6 billion each year. The government believes the impact on aircraft passengers will be minimal.

Request fees will be introduced for various talent and capital investor entry plans, set at RMB 600. Visa fees will also increase to RMB 600 or RMB 1,300, depending on the length of stay.These changes are expected to generate approximately RMB 620 million in annual revenue.

The government also plans to review tolls for major tunnels and main roads, some of which have not been adjusted for over 30 years. The Transportation and Logistics bureau will conduct this review, along with examining charges for electric private license plate fees, parking meter fees, and fixed fines for traffic violations. These adjustments are initially estimated to increase revenue by approximately RMB 2 billion per year.

The government is considering levying border construction fees on private cars leaving the country’s border control stations. Tourist buses and trucks will not be affected. A charge of 200 yuan per private car could generate about 1 billion yuan in revenue each year.

Bond Issuance and Fiscal Forecasts

The government forecasts issuing bonds to fund infrastructure projects, particularly in the northern metropolitan areas. It is estimated that bonds will be issued under the Government Lasting Bond Scheme and the Infrastructure Bond Scheme for a total of approximately RMB 150 billion to RMB 195 billion each year during the five years from 2025/26 to 2029/30. Approximately 56% of these funds will be used to refinance short-term debt due.

During the interim fiscal forecast period, the government expects the combined loan cap for the two bond plans to be raised from the current RMB 500 billion to RMB 700 billion. The government debt-to-gross product ratio is projected to remain at 12 to 16.5%, which Chan Mo-po described as very robust and controllable, noting that it is indeed much lower than the debt levels of most advanced economies. He emphasized that the funds obtained from government bonds will be used for infrastructure investment and not for government regular expenses, a fiscal discipline that will be strictly adhered to.

Government Department Spending Cuts

The government aims to increase savings in government current expenditure from 1% to 2% in 2025/26, lasting for two years until 2027/28. Combined with the 1% reduction in 2024/25, the cumulative reduction will be 7%.Based on current expenditures for 2023/24, this translates to savings of approximately RMB 3.9 billion, RMB 11.7 billion, RMB 19.5 billion, and RMB 27.3 billion,respectively.

Revised Budget and Fiscal Reserves

In 2024/25, the government’s overall revenue revision budget was approximately RMB 559.6 billion, 11.6% lower than the original budget. Income from profits and salary tax remained stable at RMB 177.7 billion and RMB 88 billion, respectively, similar to the original budget.However, land price revenue was RMB 13.5 billion, a meaningful decrease of about RMB 19.5 billion from the original budget.Stamp duty income was RMB 58 billion.

Hong Kong’s Financial Secretary, Chen Mo-po, presented the government’s fiscal budget for 2025/26 on Tuesday, February 25, 2025, outlining a extensive strategy to address public fiscal pressures and ensure sustainable economic progress. The proposals include a mix of new revenue measures, government spending adjustments, and economic projections aimed at fortifying Hong Kong’s financial position and contributing to its long-term prosperity. The budget anticipates deficits in the short term but projects a return to surplus conditions in the coming years.

The fiscal strategy focuses on balancing fiscal responsibility with strategic investments. Key components include increasing revenue through new taxes and fees, managing government debt, and optimizing existing resources. These measures are designed to support the economy and its citizens while ensuring the long-term financial health of Hong Kong.

New Revenue Measures

To bolster its revenue streams, the government is implementing several new measures. One significant change is an increase in the departure tax for aircraft passengers. Starting in the third quarter of 2025/26, the tax will rise from 120 yuan per passenger to 200 yuan. The government anticipates this will generate approximately 1.6 billion yuan annually. officials believe the impact on passengers will be slight.

Additionally, application fees for various talent and capital investor entry plans will be introduced at 600 yuan.Visa fees will also increase to either 600 yuan or 1,300 yuan, depending on the length of stay. These adjustments are projected to increase revenue by about 620 million yuan per year.

A comprehensive review of tolls for government tunnels and main roads is also underway. The Transportation and Logistics Bureau will assess these charges,some of which have not been adjusted for over 30 years,to better reflect the principle of “user pays for themselves.” This review will also encompass electric private license plate fees, parking meter fees, and fixed fines for traffic violations. The government estimates that these adjustments could generate approximately 2 billion yuan per year.

The government is also considering the implementation of border construction fees on private cars leaving the country’s border control stations. Tourist buses and trucks would be exempt. A charge of 200 yuan per private car, such as, could bring in about 1 billion yuan in revenue annually.

In January, the government submitted a draft bill to the Legislative Council to implement the global minimum tax plan launched by the Association for Economic Cooperation and Development (OECD). This plan addresses the erosion of the tax base and the transfer of profits. The proposal includes a 15% global minimum tax and a Hong Kong minimum supplementary tax for large multinational corporations with annual revenue of 750 million euros or more. If passed, the bill could generate approximately 15 billion yuan in tax revenue annually, starting from 2027/28.

Government Spending and Fiscal Projections

The government expenditure in 2024/25 is similar to the budget,with the revised budget for overall expenditure of RMB 754.8 billion, RMB 22.1 billion lower than the original budget. Current expenditure was RMB 562.5 billion,RMB 17.7 billion lower than the original budget.

Looking ahead to 2025/26, overall government spending is projected to rise by about 8.9% to RMB 822.3 billion, equivalent to 24.4% of the nominal GDP. Current expenditure will increase by 4.5% to RMB 588.1 billion in 2025/26. People’s livelihood-related policies, including medical care, social welfare, and education, will total RMB 348.6 billion, accounting for nearly 60% of current expenditure. Non-recurring expenses will fall by 3.4% to RMB 36.1 billion.

Total government revenue for 2025/26 is expected to be RMB 659.4 billion. Income and profit tax are projected to be RMB 301.2 billion. The land sale plan and land supply target for 2025/26 are based on a land price income budget of RMB 21 billion. Considering the recent stock market trading situation,the stamp duty revenue budget is approximately RMB 67.6 billion, and the government will remit about RMB 62 billion from six seed funds established outside government accounts.

After accounting for approximately RMB 150 billion in government bond issuance in 2025/26 and repayment of approximately RMB 54.1 billion, the annual deficit is expected to be RMB 67 billion, and fiscal reserves will fall to RMB 580.3 billion.

The government’s medium-term fiscal forecast projects a real economic growth rate of 2% to 3% in 2025/26 and approximately 2.9% per year from 2026/27 to 2029/30. During this period, government basic engineering expenditures are expected to average approximately RMB 120 billion per year, while current expenditures will increase by an average of 3.5% per year. The ratio of government overall expenditure to GDP will gradually decline from approximately 24.4% in 2025/26 to approximately 20.9% in 2029/30.

Land price income in 2026/27 and subsequent years is mainly calculated as the gradual increase in land price income to 2% of the local GDP, lower than the average ratio of 3.3% in the past 20 years, indicating a conservative forecast. Chan Mo-po also assumes that the growth rate of profit tax and other tax revenue will be similar to the economic growth rate in the next few years. Government revenues are expected to remain at a level equivalent to about 20% of GDP from 2025/26.The interim fiscal forecast also reflects the issuance of government sustainable bonds and infrastructure bonds of approximately RMB 150 billion to RMB 195 billion each year.

Based on these assumptions and arrangements, the deficits of operating and non-operating accounts in the next five years are expected to narrow year-on-year, with operating accounts resuming surplus from 2026/27. The deficit in non-operating accounts is projected to gradually decrease from RMB 159.8 billion in 2025/26 to RMB 87.6 billion in 2029/30. Including net proceeds from the issuance of bonds, the government’s comprehensive accounts are expected to resume surplus from 2028/29. These calculations do not account for possible tax relief and other relief measures that may be introduced in the future of 2025/26.

It is indeed estimated that by the end of March 2030, the government’s fiscal reserves will be RMB 579.1 billion, equivalent to 13.9% of the local GDP,or about eight months of government expenditure.

Managing Government Debt

Regarding government debt, the governance plans to continue issuing debt to finance infrastructure expenditure. Over the five years between 2025/26 and 2029/30, the government expects to issue approximately 150 billion to 195 billion yuan under the Government Sustainable Bond Scheme and the infrastructure Bond Scheme. approximately 56% of these funds will be used to refinance short-term debt due.

The government’s total loan ceiling for these two bond plans will be raised from the current 500 billion yuan to 700 billion yuan during the medium-term fiscal forecast period. Chen Mo-po emphasized that the government debt to GDP ratio will remain at a stable and controllable level of 12% to 16.5%, which is far below the debt level of most advanced economies. He also clarified that funds obtained from government bonds will be used for infrastructure investment and not for regular government expenses, underscoring the government’s commitment to fiscal discipline.

Optimizing Existing Resources

In a move to optimize existing resources, the government will re-allocate approximately 15 billion yuan from the epidemic prevention and anti-epidemic fund to government accounts next month. This decision follows a review of the fund’s usage and consideration of required reserved expenses. The re-allocation will be reflected in the 2024/25 annual revised budget.

To further demonstrate fiscal responsibility, the government proposes a wage freeze in 2025/26 for all executive, legislative, judicial organs, and district councils. This includes the Chief Executive, politically appointed officials, non-official members of the executive Council, all civil servants, the Chairman of the Legislative Council and all members of the Secretariat, the Chief Justice of the court of final Appeal, judges at all levels of courts and judicial personnel, and district council members.

The government also announced adjustments to the Public transportation Fee Subsidy Plan. Starting in June 2025, the subsidy threshold will be increased from 400 yuan per month to 500 yuan. The government will provide a one-third subsidy for citizens’ monthly expenditures exceeding 500 yuan, while the monthly subsidy limit of 400 yuan will remain unchanged.

Medium-Term Fiscal Forecast

Looking ahead, Chan Mo-po projected the medium-term fiscal forecast to be 579.1 billion yuan by the end of March 2030. He anticipates that deficits in operating and non-operating accounts will narrow year-on-year, with operating accounts resuming a surplus from 2026/27. Non-operating account deficits are expected to gradually decrease from 159.8 billion yuan in 2025/26 to 87.6 billion yuan in 2029/30. By the end of March 2030, fiscal reserves are estimated to be 579.1 billion yuan, equivalent to 13.9% of the local GDP, or about eight months of government expenditure.

The government anticipates a comprehensive deficit of RMB 87.2 billion for the fiscal year 2024/25, after accounting for the issuance of RMB 130 billion in government bonds and the repayment of RMB 22.1 billion in maturing debt. As of March 31, 2025, fiscal reserves are projected to stand at RMB 647.3 billion.

Looking ahead to the 2025/26 fiscal year, the government projects an annual deficit of RMB 67 billion, factoring in approximately RMB 150 billion in government bond issuance and the repayment of approximately RMB 54.1 billion. This would result in a decrease in fiscal reserves to RMB 580.3 billion.

Despite the projected deficits, the government anticipates a gradual advancement in its financial position. The government predicts that its operating accounts will achieve a rough balance in 2025/26 and will return to a surplus starting in 2026/27.

Non-operating accounts are expected to remain in deficit in the medium term due to accelerated promotion of northern metropolitan areas and other economic and livelihood-related engineering projects. Though, the government forecasts that the deficit level will decline year by year from 2026/27.

Chan mo-po expressed confidence in the government’s ability to overcome fiscal challenges through active measures and strengthened fiscal management. He also highlighted the importance of the budget’s cover, which features a lake blue color. According to Chen, this color symbolizes the infinite potential in the blue ocean in the future development, and also symbolizes the profound foundation and broad prospects of high-quality economic development. Just as the lake and the ocean

This HTML is a good start to presenting the Hong Kong budget information in a readable format. Here’s how we can improve it further:

Improvements and Additions:

1. Structure and Presentation: The current structure is quiet dense. Break down the long paragraphs into shorter, more focused ones. Use bullet points or tables where appropriate to highlight key figures and policies. Such as, the “New Revenue Measures” section coudl benefit greatly from a table summarizing the new taxes and estimated revenue increases.

1. Data Consistency and Currency: The article mixes RMB (Renminbi, the Chinese currency) and yuan. Maintain consistency; yuan is preferred as it’s the Hong Kong dollar. The article also needs to clarify whether the figures are in Hong Kong dollars or RMB.If in RMB, it should be explicitly stated.

1. Clarity and Specificity: Some phrases are vague. For example, “leniently taxed” needs clarification. Quantify the tax relief more precisely. Instead of “approximately,” use more precise figures wherever possible. If precise figures aren’t available, indicate the lack of precision explicitly (e.g.,”estimated to be in the range of X to Y”).

1. Headings and Subheadings: Add more subheadings within sections to improve readability and navigation.As an example, the “Government Spending and Fiscal Projections” section could be divided into subheadings like “2024/25 Revised Budget,” “2025/26 Budget Projections,” and “Medium-Term Forecast.”

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