Like every government in the world, the Hong Kong government has had to make difficult choices regarding the allocation of financial reserves to alleviate the economic pain many businesses and citizens are suffering. Indeed, the United States Senate is presently going through very agonizing and fractious deliberations on how much federal assistance to give its citizens.
Hong Kong is, however, in the extremely fortunate position that it still has ample financial reserves to use to this end. The reserves have dropped, but there is still more than HK$800 billion ($103 billion) in the war chest. This firepower that our government has at its disposal is unique compared to most other governments. This is thanks to previous administrations that have been financially very prudent, wanting to build up reserves for the proverbial rainy day.
Clearly, that rainy day is here: At the very least, it could reasonably be described as a “black rain” year. Coming after many months of street violence followed immediately by the pandemic, the damage to the Hong Kong economy and social fabric is unprecedented. The evidence is visible for all to see. The double whammy has forced the closure of many shops, restaurants, bars and various SMEs. The closed shutters are unmistakable scars that now mar our once-economically vibrant cityscape. In addition, many tourism-related small businesses have filed for bankruptcy as the pandemic has forced international leisure travel to grind to a halt. Meanwhile, international retail brands are also packing their bags and relocating to other places in Asia, most notably elsewhere in China. As a consequence of all of this, unemployment has risen to a 17-year high at 7 percent. It is without exaggeration a fact that since the handover, Hong Kong has never faced a more dire economic situation.
The financial secretary clearly recognizes this, and has proposed various handouts and measures to ease the hardship totalling some HK$120 billion. However, this is considerably less than last year, notwithstanding the worse situation.
In order to help the citizens navigate through the dual attacks of both the COVID-19 pandemic and an ailing economy, the absolute priority should be twofold: Firstly, to ensure that everyone gets tested and as many as possible speedily vaccinated; and secondly, that there is actual money in the people’s pockets which will in turn flow back into the economy.
In view of the very unfortunate hesitancy of many people in getting vaccinated, more funds should have been allocated to the testing of as many of our residents as possible. A simple solution might be to make any testing in an authorized hospital or clinic tax-deductible. For people in some professions subject to intense public exposure, like taxi drivers, regular testing with quick results is crucial, and the associated costs are not always borne by the employers. These costs should be deductible for either the employer or employee depending on who pays for them.
Another method to encourage as many residents to get vaccinated as possible, with the prospect of generating a herd immunity, is to incentivize them with an additional tax break once vaccinated. While unorthodox, the seemingly ever-lingering pandemic and the need for society to return to normal as soon as possible warrants out-of-the-box thinking. Despite our wealth, Hong Kong is not first in class regarding the speed and the breadth of the vaccination rollout. Israel stands out as an example to learn from as their people are used to reacting speedily to various national emergencies — including a war footing, which is how we should be treating the invasion of COVID-19.
In providing much-needed financial help, the financial secretary has chosen not to repeat the cash handouts used in previous years. Despite this being a tried-and-tested method, the government now proposes something brand new, with the real operational risks that entails; namely, the disbursement of monthly electronic vouchers of HK$1,000 each for five months. Permanent residents and “new immigrants” will be able to apply for this program. After receiving the first monthly voucher of HK$1,000, the subsequent monthly voucher will be made available only when the previous voucher has actually been used, thereby generating greater business activity. No doubt there are other good ideas to stimulate the local economy, if we would remember to think out of the box!
Let us hope that there will not be any software or other operational glitches, as it seems quite a complex operation. The issue that is somewhat worrisome is the assumption that every permanent resident and new immigrant (however that may be defined) has a smartphone sophisticated enough to be able to deal with this. The even more worrisome assumption is that all the elderly are conversant enough with modern technology to be able to actually benefit from this. While we hope that it will all roll out very smoothly, apart from the operational risks, the question is how much of a boost the local economy will gain from the monthly injection of a mere HK$1,000 per eligible resident.
Another proposed measure is also original and seems sensible. The government guaranteed loans for the recent unemployed with a very low interest rate and a relatively long payback period. It should alleviate some financial burden, albeit the maximum amount per individual is not that high. However, the eligible group is limited to about 180,000 individuals, according to some reports, meaning the impact on the broader economy will be small. In an unusual year, this was in some respects a “usual” budget with a number of small measures such as electricity bill subsidies, individual property rate concessions, and discounts in both salary and profit tax, which we have seen before. The new and very necessary element has been to try to raise the tax revenue for the government in such a manner that it would have very limited impact on the financial well-being of most ordinary residents. This was accomplished in a very clever way by a very small raise in the stamp duty on shares traded on the Hong Kong Stock Exchange. This was the very first increase in 28 years, and being a mere 0.03 percentage point increase, the increasing number of shares being traded will provide a substantial revenue boost for the government.
All in all, this was an interesting budget with original initiatives which will need to prove themselves. The aforementioned stamp duty on share trading was an excellent way to start looking at decreasing the budget deficits without the pain being felt by the general public. A chance was missed to focus even more on the testing and the vaccinations, but other new elements might prove to be very positive. Most notably, the proof of the pudding will be in the operational rollout of the electronic voucher scheme.
The author is a specialist in international public law, and an adviser on China-related matters to both the private and public sectors.
The views do not necessarily reflect those of China Daily.