New Budget 2020-21 Release of the Hong Kong Financial Secretary

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Feb 26, 2020

Financial Secretary delivered 2020-21 Budget
The Financial Secretary of the Hong Kong Special Administrative Region Government delivered the 2020-21 Budget, at a time when Hong Kong is facing unprecedented challenges to the health of our economy and the well-being of the entire community.  The bold, substantive and forward-looking proposals in the 2020-21 Budget will help to boost our efforts to combat the coronavirus epidemic, take care of people in need and bolster the economy.  
2019 was an unsettling year fraught with obstacles and an unforgettable one for all Hong Kong people. Early last year, Hong Kong had already foreseen that its economy would be subject to considerable uncertainties due to the US-China trade conflict and other external factors.  The unprecedented social incidents then broke out in the middle of the year.  Then there was an unexpected outbreak of the novel coronavirus disease.

The HK$120 billion (about EUR 14.13 billion) counter-cyclical measures proposed in the 2020-21 Budget represent an unequivocal commitment by the Hong Kong Special Administrative Region Government to rise to the challenge of overcoming adversity and helping people in need. These proposals also complement the initiatives set out under the recently established HK$30 billion (about EUR 3.53 billion) Anti-epidemic Fund.  The 2020-21 Budget also offers a wide range of measures to strengthen Hong Kong’s pillar industries while identifying new growth engines among emerging sectors.
Following are the relevant highlights -
Key initiatives to develop and diversify the economy
Financial Services
·        Issue green bonds totaling HK$66 billion (about EUR 7.77 billion) over the next five years
·        Issue inflation-linked retail bonds and Silver Bonds totaling at least HK$13 billion (about EUR 1.53 billion)
·        Waive stamp duty on stock transfers paid by Exchange Traded Fund (ETF) market makers when creating and redeeming EFT units in Hong Kong
·        Establish a limited partnership regime and provide tax concessions for carried interest issued by private equity funds

Innovation and Technology
·        Earmark HK$3 billion (about EUR 353 million) for Phase 2 of the Hong Kong Science Park Expansion Programme
·        Inject HK$2 billion (about EUR 236 million) into the Innovation and Technology Fund to launch the Re-industrialisation Funding Scheme, providing matching-basis support for manufacturers setting up smart production lines in Hong Kong
·        Explore the development of a third InnoHK research cluster
·        Increase the grant ceiling under the Technology Voucher Programme to HK$600,000 (about EUR 70,650), raising the Government’s funding ratio to 75 percent
·        Set aside HK$345 million (about EUR 40.62 million) for a pilot subsidy scheme to encourage the logistics industry to boost productivity through technology
·        Expand the Research Programme and Postdoctoral Hub to cover all technology companies conducting R&D activities in Hong Kong

In Addition
·        HK$ 900 million (about EUR 105.98 million) to the Art Development Matching Grants Scheme
·        HK$ 700 million (about EUR 82.43 million) to the Hong Kong Tourism Board for tourism promotion once the epidemic is over
·        HK$ 150 million (about EUR 17.66 million) to the Hong Kong Trade Development Council for promotional activities
·        HK$ 216 million (about EUR 25.43 million) to the Arts Development Council and Leisure and Cultural Services Department for internships, scholarships and on-the-job training, offering about 700 placements
·        Nearly 5,000 Government and public organization short-term internship places to be made available in 2020-21

Tax relief and other concessions -
Cash Payout
·        Cash Payout to Hong Kong permanent residents aged 18 or above of HK$10,000 (about EUR 1,178)

Support for businesses and salary earners
·        Concessionary low-interest loan with 100% Government guarantee for enterprises, up to a maximum of HK$2 million (about EUR 236 million)
·        Reduce profits tax for 2019-20 assessment year by 100%, up to a maximum of HK$20,000 (about EUR 2,355)
·        Reduce salaries tax for 2019-20 assessment year by 100%, up to a maximum of HK$20,000 (about EUR 2,355)
·        Waive rates for non-domestic properties for 2020-21, up to HK$5,000 per quarter (about EUR 590) in first two quarters and HK$1,500 (about EUR 177) for the remaining two quarters per property
·        Waive business registration fees for 2020-21
·        Waive registration fees for company annual returns for 2 years
·        Electricity subsidies for non-residential accounts and Water and Sewage Charges reduced for non-domestic households

Economic Performance in 2019
GDP growth:                        -1.2%
Headline inflation:                 2.9%
Underlying inflation:                 3.0%
Unemployment (latest):        3.4% - the highest in more than 3 years.

Economic Forecast for 2020
GDP growth:                        -1.5% to 0.5%
Headline inflation:                       1.7%
Underlying inflation:                     2.5%

2019-20 Estimated Fiscal Deficit - HK$37.8 billion (about EUR 4.45 billion), the equivalent of about 1.3% of GDP

2020-21 Estimated Fiscal Deficit -  HK$139.1billion (about EUR 16.38 billion), the equivalent of about 4.8% of GDP.  However, almost HK$120 billion (about EUR 14.13 billion) of deficit related to the cash payment scheme and other one-off relief measures, which will not incur long-term financial commitments

Total fiscal reserves of HK$1,133.1 billion forecast (about EUR 133.42 billion) by 31 March 2020  – equivalent to 22 months of government expenditure

Articles authored by Martin Signer

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