Govt unveils HK$19 bln stimulus as it downgrades GDP forecast

August 16, 2019 16:13
Financial Secretary Paul Chan speaks at a news conference on Thursday to discuss the government's efforts to counter a slowing economy. Photo: HKEJ

Hong Kong authorities on Thursday announced a HK$19.1 billion (US$2.4 billion) financial package to help businesses and households cope with the challenges arising from a slowing economy amid various macro headwinds and ongoing social unrest in the city. 

Unveiling the measures, Financial Secretary Paul Chan Mo-po said at a press conference that the government aims to support businesses, especially small and medium enterprises (SMEs) and help  safeguard jobs, as well as offer relief to households and individuals.

The stimulus comes following weak economic growth in the first half of 2019 and a downward revision in the forecast for full-year growth. 

Among measures aimed at assisting the business sector, 27 groups of government fees and charges will be waived for 12 months to benefit a wide range of sectors, including maritime, logistics, retail, catering, tourism, construction, and agriculture and fisheries.

Also, Hong Kong Mortgage Corp will introduce a new loan guarantee product under the SME Financing Guarantee Scheme, under which the government will offer a 90 percent guarantee for approved loans to help individuals looking to establish new businesses, businesses with relatively less operating experience, as well as professionals seeking to set up their own practice.

Other measures include reducing the rental for most short term tenancies of government land for community and business use by 50 percent for six months.

As for relief provided for the general public, the government will extend the 75 percent of salaries tax reductions proposed earlier in the 2019-20 Budget to 100 percent while retaining the ceiling of HK$20,000. The measure is expected to benefit about 1.43 million taxpayers.

In addition, among several other measures, kindergarten, primary and secondary day-school students in Hong Kong will each receive a subsidy of HK$2,500 for the 2019-20 academic year, which will cost around HK$2.3 billion and benefit more than 900,000 students.

A one-off electricity charge subsidy of HK$2,000 will be provided to each residential electricity account, which will cost around HK$5.6 billion, benefiting more than 2.7 million eligible households.

Impacted by external factors, which include the Sino-US trade war and Asia’s economic and trade slowdown, Hong Kong's economy grew only by 0.6 percent from a year earlier in the three months to June, after a similar pace in the preceding quarter, government data showed recently.

A government press release issued on Thursday evening noted that “the global economic outlook is darkened by high uncertainties, including the escalation of China-US trade tensions, imminent risk of a hard Brexit, continued geopolitical tensions in the Middle East, sluggish industrial and trading activities in Asia, heightening financial market volatilities, and market concerns about major economies slipping into recession.”

“Domestically, the recent social incidents have hit the retail trade, restaurants and tourism, adding a further blow to an already-weak economy, and also affected the international image of Hong Kong”, the government said in the release, referring to the extradition bill-related protests that have rocked Hong Kong since early June.

“A total of 29 countries have issued different levels of travel alerts against Hong Kong. International credit rating agencies have also expressed concerns about the situation of Hong Kong. The incentives of tourists travelling to Hong Kong and of businessmen abroad operating businesses and investing in Hong Kong have been affected,” the government noted.

Hong Kong’s import and export trades, logistics and related sectors “will continue to face a difficult environment,” it said. “Based on the latest developments and assessments on the outlook, the Hong Kong economy will continue to face an austere environment for the rest of the year."

The government said, as such, it “must revise downwards the real growth forecast for the economy in 2019 as a whole” to between zero and 1 percent.

That marked a downgrade from a previous forecast for annual growth in the 2 to 3 percent range.

Given the situation, the government said it decided to “counter the challenging external and local economic environment”, while offering help to local enterprises and citizens.

Chan said in the press conference that relief measures will take effect in October at the earliest once funding approval is secured from the Legislative Council.

The measures, it is hoped, will give a 0.3 percentage point lift to the economy.

The finance chief said the package of sweeteners should not be considered as a response to the political pressure stemming from the extradition bill saga, and that the move should instead be seen as preparation for the future.

"The package of... measures to support enterprises and relieve people’s financial burden, excluding public works expenses, will cost a total of about HK$19.1 billion,” Chan said.

“Together with one-off relief measures announced in the 2019-20 Budget, which cost HK$42.9 billion, they will provide impetus for our economy and help cushion the enterprises and people of Hong Kong against challenges arising from economic uncertainties."

Responding to talk that additional expenses from the relief package could result in the government posting a deficit of HK$2.3 billion in the next fiscal year, rather than enjoy a HK$16.8 billion surplus as per previous projections, a government spokesman said the amount will be allocated in phases, stressing that Hong Kong’s financial status will remain healthy despite a small deficit.

The pro-Beijing Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), the largest political party in the legislature, said it believes the stimulus unveiled by the government will help enterprises and citizens weather the emerging economic challenges to a certain degree.

The opposition Democratic Party, however, was skeptical. It argued that the financial sweeteners were being used by the government as a way to deflect people's attention from the ongoing political crisis, and that the measures won't be a cure for the problems in society.

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