Hong Kong’s financial chief has revealed he plans to maintain or even increase levels of public spending in the forthcoming budget to protect livelihoods during the economic downturn, despite the heavy strain on government funds.
Paul Chan Mo-po said on Sunday he would deliver a “countercyclical fiscal policy” in his February 24 speech, an approach favouring higher spending and lower taxes in a recession.
The city’s financial reserves have shrunk 30 per cent to HK$800 billion (US$103.1 billion) over the past year, mostly due to a series of massive relief packages designed to prop up the economy amid the Covid-19 pandemic.
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Chan also dismissed the prospect of major tax reforms in the short term, saying such profound changes could not be dealt with over one or two budgets.
“Hong Kong is in the middle of a downward economic cycle. I will maintain a countercyclical fiscal policy in the forthcoming budget,” Chan wrote on his official blog.
“By maintaining or even increasing public expenditure especially … in investment, it is hoped the impact of the downturn on people’s livelihoods can be eased, while at the same time preparing for reviving our economy after the epidemic.”
The minister said he received a wide range of views on the upcoming budget after appearing on an RTHK programme on Saturday to gauge public opinion.
Suggestions included another round of cash handouts to residents, distributing spending vouchers, and tax rebates, as well increasing levies and introducing new ones.
Chan said he appreciated the difficulties faced by middle-class and low-income families, but warned the record deficit of about HK$300 billion for 2020-21 must not be taken lightly. He promised to adopt a “comprehensive and balanced” approach.
Hong Kong was hit by anti-government protests in the second half of 2019, before the Covid-19 crisis took hold at the beginning of last year. The China-US trade war was also a factor as the economy plunged into a deep recession.
According to the latest government forecast, Hong Kong’s economy is to contract by 6.1 per cent for 2020, marking the first time the city has experienced two consecutive years of declining gross domestic product. GDP fell by 1.2 per cent in 2019.
On calls for tax reforms to address issues such as income inequality, Chan acknowledged that was an important issue.
But he said: “This will involve the profound adjustment of the entire society and its future direction of development, and the related issues are also closely interlinked.
“There is a need for the society to have thorough and informed discussion to reach a consensus before it can be put into practice. It is not realistic to expect that the issues can be handled in one or two budgets.”
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