This year’s Budget signals the start of what may be a 2-3 year period of legislative consolidation. After a relatively busy two years – which saw twelve separate tax bills hit the statute books – the HKSAR Government (“the Government”) is now absorbing the changes which each of these bills represents. Above all, this is a period in which the Government must implement and promote this raft of measures. It must ensure that they are relatively easy to take up, and must then monitor their effectiveness.
This is also a period of preparation, which anticipates substantial change as the Greater Bay Area (GBA) moves off the drawing board and becomes a daily reality. Hong Kong’s role within the GBA, as indicated in the Outline Development Plan, is to be a hub for financial services, as well as innovation and technology. The need to ensure that Hong Kong has a workforce with the right skill-sets is reflected in measures such as the development of the Hong Kong Science and Technology Parks and Cyberport 5, as well as significant funding to R&D and the universities.
A greater orientation towards technology among Hong Kong’s workforce will take time. Continuing policy efforts to address this talent issue will be required. It will also need to leverage the GBA to attract talent. But, while Hong Kong offers a low-tax environment, housing costs and availability of school places are real issues. The Government will need to develop innovative measures – aimed at individuals as well as employers – to overcome this.
One issue that appears to be missing from the Budget is clear measures to promote Hong Kong as a location of choice for regional headquarters. These attract international talents, create high-value employment and expand the economy.
A significant aspect of this period of absorption and preparation, according to the Financial Secretary, will be the need for strategic tax measures “to enhance our competitiveness and stabilise our revenue”. As part of this, the Tax Policy Unit (TPU) will no longer be under the Financial Services and Treasury Bureau (FSTB) but will report directly to the Financial Secretary’s Office. We anticipate that there will be much greater focus on tax measures as a result, and possibly more resources to develop them.
The current high levels of investment and welfare spending would mean a deficit in this year’s Budget without the write-back of the Housing Reserve to the Fiscal Reserve over the next four years. But while this measure addresses the immediate problem, the longer-term question is how to maintain stable government revenues to fund growing future expenditures.
The overall tone of this year’s Budget is one of caution, reflecting a commitment to long-term investment and direct spending, rather than one-off relief measures and eye-catching giveaways.
PwC’s view is that this Budget marks an important inflection point in the Government’s steering of the economy. A very wide range of schemes and incentives have been introduced in recent years to prepare Hong Kong for the future. But more needs to be done to follow through on these schemes and make them more user-friendly and commercially-driven for their target audiences. The Government must now redouble its efforts to ensure that the Hong Kong economy reaps maximum reward from what are often quite generous provisions.
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