Finance chief warns of first budget deficit in 15 years

December 03, 2019 13:23
Poor economic environment, weaker land sales and tax revenues, and increased public expenditures on relief and welfare measures will dent the government’s budget books in the current fiscal year, Paul Chan says. Photo: HKEJ

Hong Kong may record a budget deficit for the first time in 15 years in the current financial year that ends in March, Financial Secretary Paul Chan Mo-po said on Monday, warning about the fiscal strain as the government grapples with months-long social unrest in the city.

Reporting to the Legislative Council’s Panel on Financial Affairs on Monday, Chan cited a worsened economic environment, weaker land sales and tax revenues, and increased public expenditures on relief and welfare measures as factors that gave rise to the grim forecast.

Chan told lawmakers that while a surplus had been expected in the original budget, the unforeseen factors arising from the social disturbances have led him to conclude that the government will end up with a deficit for the full 2019-2020 fiscal year.

It would mark the first such deficit in 15 years, Chan noted.

The finance chief said the social events and the violent conflicts in society had dealt a huge blow to Hong Kong's economy, and that the situation is very worrying.

The months of violent incidents have undermined the confidence of the international community and investors toward Hong Kong, Chan said, adding that there was also a huge fallout on local consumption.

Chan warned that things could get worse, affecting people's livelihoods, in the days to come if the violent events continue.

To bring the economy back on track, all stakeholders, including various business sectors, must join in the efforts to put an end to the violence and chaos, so that social order can be restored as soon as possible and ensure that citizens can get back to their normal life and businesses can resume normal operations, he said.

Hong Kong needs to restore itself and start afresh, creating room for rational dialogue, Chan added.

The finance chief's comments came as government data released on Monday showed that retail sales in October, provisionally estimated at HK$30.1 billion, were down 24.3 percent from the same month last year, the largest year-on-year decline for a single month on record.

Chan predicted that the Kong economy will contract by 1.3 percent this fiscal year, as the recent events were expected to dent the GDP by as much as two percentage points.

While giving the grim prognosis for the current financial year, Chan, however, insisted that Hong Kong's economic position remains sound from a longer-term perspective.

"We have accumulated a surplus over the years, so the government is still in a healthy financial position," public broadcaster RTHK quoted Chan as saying.

The government will continue adopting forward-looking and strategic financial management principles to invest for the future and relieve people’s burdens while also ensuring a sound overall financial status, the finance secretary said.

After the social turbulence subsides, authorities will launch promotional campaigns in the mainland and elsewhere in order to boost Hong Kong businesses and investments and rejuvenate the tourism sector, he said.

Talking about indirect taxes, Chan noted that the narrow tax base has been a chronic problem in Hong Kong and that the issue has to be dealt with in the long run.

But he assured that different opinions in society will be taken into consideration before any new policy decisions are made.

Speaking to the media before an Executive Council meeting on Tuesday, Chief Executive Carrie Lam Cheng Yuet-ngor said the government will roll out the fourth round of relief measures to help businesses and citizens affected by the social unrest.

Now is the opportunity to make good use of the budget surplus to introduce relief measures for citizens, despite the expected budget deficit in the current fiscal year, she said.

Lam said she had asked senior government officials to help industries resolve their difficulties.

As the economy is in a difficult position, with the retail sector suffering and the employment market coming under strain, the government will monitor the situation closely and take appropriate measures to support enterprises and safeguard jobs, she added.

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