(Bloomberg) — Hong Kong’s government unveiled a budget packed with giveaways including a one-time cash handout that economists said isn’t likely to spur growth, as the city struggles to stabilize an economy battered by political unrest and the coronavirus.
The main feature of the annual budget announced Wednesday is a payment of HK$10,000 ($1,284) to each permanent resident of the city 18 or older, aiding a population “overwhelmed by a heavy atmosphere,” Financial Secretary Paul Chan said. Chan estimated the deficit will reach a record HK$139.1 billion in the coming fiscal year.
The administration of Chief Executive Carrie Lam is seeking to stop the slide of the collapsing economy, rolling out the boldest budget in recent years amid blame for government inertia. Months of political unrest over China’s role in the city pushed Hong Kong last year into its first annual recession in a decade, with economists forecasting a second annual contraction in 2020 as disruptions from the coronavirus outbreak further depress output.
“In these unprecedented times, I am confident that the 2020-21 budget proposals will provide effective and targeted support to help the Hong Kong community withstand the current difficulties and gear up for a brighter tomorrow,” Lam said in a statement welcoming the spending plans.
However, the handout immediately came in for criticism from economists.
“This is obviously untargeted and regressive and will not solve the problem of those most severely hit,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA. “It is like throwing a drop in the ocean for many while you could have used that amount to cure the injuries of only a few.”
Ahead of the budget, accounting firm KPMG LLP pushed for handouts yet in the form of electronic vouchers to encourage direct spending, rather than saving or moving the cash abroad.
Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets, is skeptical as to whether Hong Kong residents will rush to spend a cash windfall.
“That sounds like a lot, but would you go out and spend it? The answer is no,” he said. “The economic benefits will only be marginal. Shops and restaurants are screaming for business. It’s not going to help.”
The handout is not the first in Hong Kong. The government distributed HK$6,000 to all permanent residents in 2011. In 2018 the government introduced a “Caring and Sharing” program to hand out as much as HK$4,000 to certain low-income residents.
Singapore also announced cash handouts in its budget last week, pledging a one-time payout of between S$100 ($71.52) and S$300 for Singaporeans age 21 and older, as part of a S$1.6 billion support package to help households cope with expenses. The city state is forecasting its biggest budget deficit in more than two decades in the coming fiscal year, with S$6.4 billion in support for an economy slammed by the coronavirus outbreak.
The budget contained a range of measures aimed at lessening the pain of the recent downturn. Homebuyers, students, investors and small businesses all were targeted for support in the budget. In all, the package is worth 4.2% of 2018’s gross domestic product, according to Bloomberg Economics.
“In view of the tough economic environment, we will adopt an expansionary fiscal stance and make optimal use of our fiscal reserves to implement counter-cyclical measures,” Chan said. The objective is “supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden, so as to help Hong Kong tide over the difficulties,” he said.
The Hong Kong Police Force, widely criticized by residents for using excessive violence during the protests, is getting a big boost from the government that will push its spending to HK$25.8 billion in the coming fiscal year, according to a budget document. That’s a 9.3% increase on revised spending projections of HK$23.6 billion for the 2019-2020 fiscal year. The police force plans to increase its staff by more than 2,500 by March 2021, the document shows.
Chan unveiled an official forecast for economic growth this year of between -1.5% and 0.5%, and confirmed a contraction of 1.2% in 2019. The 2019-2020 fiscal deficit came in at HK$37.8 billion, the first shortfall since 2004.
The economy in the first quarter is expected to be “rather bad,” Chan said at a briefing after the budget speech.
What Bloomberg’s Economists Say…
“It will go some way to offsetting the extra downward pressure from the coronavirus, which has slammed China’s economy — with major spillover to business in the city. On balance, our forecast for GDP to contract 0.4% this year still looks reasonable.”
— Qian Wan, Economist
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Here are further details of the budget:
- Relief measures for businesses including a low-interest loan with 100% guarantee provided by the government, to a ceiling of HK$2 million, and a profits tax reduction of 100% on the first HK$20,000.
- Waiving business registration fees, extending subsidies on electricity and water and sewage bills.
- HK$700 million to promote tourism in the city once the coronavirus epidemic abates.
- For citizens, measures including salaries tax reduction of 100% on the first HK$20,000, waiving rates on residential properties to a ceiling of HK$1,500 per quarter, one month’s rent for lower-income tenants.
- Total recurrent funding of HK$75 billion provided to the Hospital Authority in 2020-2021.
- Hong Kong Mortgage Corp. to launch pilot program offering fixed-rate mortgage loans through the banks to provide homebuyers with more options and reduce risk of interest rate volatility.
- On the innovation front: HK$3 billion earmarked for a possible Phase 2 of the Science Park expansion program, as well as a possible third InnoHK research cluster at the park, HK$2 billion for a re-industrialization plan to support manufacturers setting up new smart production lines.
- The Department of Justice will receive about HK$450 million to enhance the community’s “understanding of the concept of the rule of law and its implementation.”
“If the benefits from the cash handouts and tax cuts are distributed this year and everyone spends them this year, the economic boost could be 0.5% to 1% of GDP,” said Tommy Wu from Oxford Economics in Hong Kong.
(Updates with information on past handout in 10th paragraph)