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Opinion | Hong Kong deserves the hard truth about its finances

  • When the government presents budget deficit figures on a net basis, it can create a false impression of abundance
  • At a time when revenue is soft, it’s surely more effective to tell the truth, so that sound decisions can be made about revenue and expenditure

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A view of the village houses at Yau Kom Tau, Tsuen Wan. Hong Kong faces a challenging fiscal situation as government revenue from land and other sources suffers. Several sales of residential sites, including at Yau Kom Tau, have failed this year. Photo: Dickson Lee
Hongkongers have been warned by Financial Secretary Paul Chan Mo-po to expect a much bigger budget deficit for the current financial year than previously forecast. Following comments he made last month, newspaper reports said the shortfall “could be nearly twice that of earlier estimates and exceed HK$100 billion”.
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In fact, the underlying situation is even more challenging than reported and I would not be surprised by a real deficit closer to HK$200 billion (US$25.6 billion).

The final deficit for 2022-23 was HK$205.8 billion, though the cashflow position was helped by bond sales of HK$66 billion, leaving a net shortfall of HK$139.8 billion.

In his budget speech early this year, Chan said that taking into account the proceeds from the issuance of government bonds of about HK$65 billion, he was forecasting a deficit of HK$54.4 billion for 2023-24. This means the shortfall before the bond issuance was estimated at around HK$119 billion.

At the halfway point in this financial year, the government reported cumulative revenue of HK$131.3 billion and expenditure of HK$355.6 billion, leaving a deficit of HK$224.3 billion. Bond sales of HK$46.6 billion reduced the shortfall to HK$177.7 billion. It would be too simplistic to just double those numbers to derive a full-year forecast as much revenue from profits and salaries taxes comes in the second half.

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Nonetheless, we already know from public comment and reporting that revenue from companies and individuals is soft, and both the property and stock markets are weak, which reduces stamp duty. A prominent residential site in Tung Chung has just been pulled from the market, so expected land revenue is also suffering.
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