Fiscal Consolidation Programme
223. We are taking steps to implement a comprehensive fiscal consolidation programme. After taking account of the need to strengthen momentum on economic growth and the burden of businesses and the public, the programme focuses mainly on expenditure cut with a view to restoring fiscal balance in a few years' time, although some revenue measures have been included in a pragmatic manner.
224. We will address the issue at its root by exercising stronger control over the pace of expenditure growth through re-engineering of business process or re‑prioritisation. This notwithstanding, the Government will remain committed to taking care of people's needs by continued allocation of resources for the provision and improvement of public services.
Contain Growth of Operating Expenditure
225. We will strictly contain growth of operating expenditure by introducing the following measures:
| (a) | continuing to maintain zero growth in the civil service establishment, with the aim of containing the establishment at a level not exceeding that as at end‑March 2021; and |
| (b) | implementing the Productivity Enhancement Programme as announced earlier under which recurrent government expenditure will be cut by one per cent for two consecutive years. The resources thus saved will be re‑allocated internally for enhancing existing or introducing new public services. To further contain the pace of expenditure growth, on the premise that such schemes as the Comprehensive Social Security Assistance Scheme and the Social Security Allowance Scheme will not be affected, all government departments need to cut recurrent government expenditure by another one per cent in 2026‑27. |
226. Upon implementation of the measures to contain expenditure growth, we forecast that the growth of operating expenditure will be reduced from the annual average of seven per cent in the past five years to an annual average of 2.2 per cent in the coming five years, which is lower than the 5.5 per cent increase in GDP over the same period.
227. Moreover, I have requested the relevant bureaux to review the mode of operation of the following two transport subsidy schemes that incur higher expenditure with a rapid expenditure growth rate. We have to emphasise that the Government has no intention to cancel these schemes. The review aims to enable the continued provision of subsidies of the schemes in a financially sustainable manner. We anticipate that the above review will be completed within this year:
| (a) | Government Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities (i.e. "the $2 Scheme"): the annual expenditure of the scheme has increased by over 200% from $1.3 billion in 2019‑20 to about $4 billion in 2023‑24; and |
| (b) | Public Transport Fare Subsidy Scheme: the annual expenditure of the scheme has doubled from $1.7 billion in 2019‑20 to the revised estimate of about $3.5 billion in 2023‑24. |
228. While we are controlling the growth rate of total expenditure, the amount of resources we allocated to public services has still recorded a significant increase. For example, recurrent expenditures related to health, social welfare and education in 2024-25 amount to $343.7 billion, up by 7.3 per cent over 2023-24 and by about 34.2 per cent over five years ago.
Review and Re-prioritisation of Capital Works
229. Implementation of infrastructure projects is not only an investment for the future, it can also promote Hong Kong's economic development and enhance people's livelihood. In recent years, the Government has made all‑out effort to press ahead with the land and housing supply projects, including new development areas and new towns, and also proposed a number of other works projects for improving the environment and people's livelihood, such as Kai Tak Sports Park and Hospital Development Plan etc. It is estimated that expenditure on capital works will start reaching its peak in the next three years.
230. The Government needs to contain its expenditure on infrastructure works at a sustainable level. To this end, relevant bureaux and departments have reviewed the cost‑effectiveness of works projects and give due regard to priority and urgency to adjust the implementation schedule. For some works projects which are at a comparatively mature stage of planning, they will continue to be taken forward by the relevant bureaux and departments as planned. They include the site formation and infrastructure works for the Northern Metropolis. As for some works projects that are currently at the preliminary planning or conceptual stage, the implementation schedule will be adjusted in light of their importance, etc.
231. In the MRF, capital works expenditure could be contained at about $90 billion per annum on average. This figure still represents an increase of about 17 per cent over the average annual expenditure of $76 billion in the last five years, which demonstrates the Government's continued allocation of resources for capital works expenditure.
Increase Revenue
232. The key to boosting public revenue lies in sustained high‑quality economic development. Only through growing the "economic pie" and enabling the economy to grow in a more robust and diversified manner can we increase our revenue to support the building of social infrastructure and people's livelihood.
233. When considering measures for increasing revenue, we have to take Hong Kong's actual situation into account and avoid taking any hasty actions that may affect local economic recovery and people's livelihood while at the same time maintaining the competitive edge of the simple and low tax regime. Having considered the above factors and based on the "affordable users pay" principle, we will implement adjustments to the following individual tax items.
234. We propose to implement a two‑tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25. In calculating the amount of tax for taxpayers whose net income exceeds $5 million and whose salaries tax or tax under personal assessment is to be charged at a standard rate, the first $5 million of their net income will continue to be subject to the standard rate of 15 per cent, while the portion of their net income exceeding $5 million will be subject to the standard rate of 16 per cent. It is expected that about 12 000 taxpayers will be affected, accounting for 0.6 per cent of the total number of taxpayers chargeable to salaries tax and tax under personal assessment. The government revenue will increase by about $910 million each year. Even with the two‑tiered standard rates regime above in place, the new tax rates will still be lower than those of other advanced economies.
235. The Government will introduce legislative amendments in the first half of this year to implement the progressive rating system for domestic properties, with the aim to bring the system into effect from the fourth quarter of 2024‑25 onwards. The new system will only affect domestic properties with rateable value over $550,000, which account for about 1.9 per cent of the relevant properties. It is estimated that the system will contribute to an increase of about $840 million in government revenue annually.
236. The Government will review various fees and charges in a timely manner. Besides adhering to the "user pays" principle, the affordability of the general public and businesses will also be taken into account. Business registration fees will increase by $200 to $2,200 per annum with effect from 1 April 2024. The last adjustment to business registration fees was in 1994. We estimate that government revenue will increase by about $295 million per annum. To relieve the relevant impact, the business registration levy of $150 payable to the Protection of Wages on Insolvency Fund will be waived for two years.
237. We propose to resume the collection of the Hotel Accommodation Tax (HAT) at a rate of three per cent. It is anticipated that government revenue will increase by about $1.1 billion per annum. This will take effect from 1 January 2025 in order to allow the hotel and tourism industries more time for preparation. The HAT to be collected is estimated to only account for less than one per cent of the total spending of overnight visitors in Hong Kong. In the coming year, the Government plans to allocate over $1 billion for upgrading tourism infrastructure and services to attract more high‑spending overnight visitors from different visitor source markets to Hong Kong.
Developments in International Taxation
238. We will continue to take forward the implementation of the global minimum tax proposal drawn up by the Organisation for Economic Co‑operation and Development to address base erosion and profit shifting. We aim to apply the global minimum tax rate of 15 per cent on large multinational enterprise groups with an annual consolidated group revenue of at least EUR 750 million and impose the Hong Kong minimum top‑up tax starting from 2025. We are now conducting consultation on the implementation of the above proposals and expect to submit a legislative proposal to LegCo in the second half of this year. It is estimated that these proposals will bring in tax revenue of about $15 billion for the Government annually starting from 2027‑28. Hong Kong maintains an edge over other tax jurisdictions in terms of tax competitiveness after the implementation of the proposals.
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