Hong Kong budget looks to tackle deficit blowout amid economic headwinds

By Jessie Pang

HONG KONG (Reuters) - Hong Kong is expected to focus on steps to curb spending in its annual budget on Wednesday, as it seeks to tackle a fiscal deficit likely to have widened to double the city's target amid rising global economic uncertainty and a weak property market.

Hong Kong's economy grew at a slower 2.5% pace in 2024, from 3.2% in 2023, and the outlook for the Asia financial hub is now overshadowed by deepening trade tensions with the United States.

That adds more pressure on policymakers as the city's finances have been hurt in the last three years by plunging revenues from land premiums - which developers pay for land use - as home prices tumbled nearly 30%.

Land sales have traditionally been a main source of income for the government, contributing more than 20% to coffers, a figure that has now slipped to around 5%.

In January, the government said it had so far recorded HK$4.3 billion in land revenues in the current financial year, just 12% of the HK$33 billion target laid out in the budget a year ago. If the revenue trend persists towards the end of the financial year, it would make it the lowest in 22 years.

Financial Secretary Paul Chan has said the projected deficit for this fiscal year ending in March is expected to be just below HK$100 billion ($13 billion) and the government is "focusing on cost-saving measures" to tackle it and revive the economy.

The estimated deficit for the year ending in March is about double the previous forecast of HK$48.1 billion, and compared with a deficit of HK$101.6 billion for fiscal 2023‑24.

Among ideas floated to tackle the deficit have been a review of the civil service, including possible salary reductions, as well as the adjustment of the city's HK$2 transport fare scheme for those aged 60 and above.

Accounting firm PwC projects a fiscal 2024/25 consolidated budget deficit of HK$94.8 billion, while KPMG expects a lower one of HK$89.7 billion.

The backdrop for the new financial year presents fresh economic challenges for the city, as U.S. President Donald Trump's tariff policies threaten to dent global growth. Trump has imposed additional tariffs of 10% on goods from China and also Hong Kong, which the financial hub's government has criticised, saying Washington has ignored the city's status as a separate customs territory.

This month, Chan wrote in his blog that the city's "Northern Metropolis", a project that aims to provide homes for around 2.5 million people and create a new business district, remained an important economic driver and the government will issue bonds to fund it.

"In order to promote strategic infrastructure and launch new industrial land more quickly, Hong Kong has the conditions and ability to appropriately issue more bonds and make flexible use of market forces," Chan wrote.

(Additional reporting by Clare Jim in Hong Kong; Editing by James Pomfret, Anne Marie Roantree and Shri Navaratnam)