Editorial | New engines for economic growth need to be identified

Hong Kong faces a deficit of about HK$100 billion in the 2024-25 financial year, thanks to substantial revenue shortfalls. Chief Executive John Lee Ka-chiu and Financial Secretary Paul Chan Mo-po take an upbeat longer-term view of the city’s financial prospects.

But Chan has less than three months until his next budget to try to identify new engines for economic growth. The deficit has ballooned from the forecast HK$48 billion mainly because of less revenue from the property and stock markets.

It was not entirely unexpected, though worrying. But Chan remains confident the budget will be back in the black within three to four years. And Lee has stressed that the outlook for the economy and sources of public revenue remain bright with Beijing’s policy backing and the city’s own initiatives to expand its presence in overseas markets.

But the outcome just six months into the financial year is a reminder of the downside of reliance on asset-related income from land sales and stamp duty on property and stock transactions.

The current year is an example. According to official figures, land sales from April to September generated only HK$4.5 billion in revenue, or 13.6 per cent of the original estimate. Revenue from stamp duties was HK$24 billion, 33.8 per cent of the budget estimate.

The question is whether to cut costs or find new revenue sources. Lee has said the government will be extra cautious while tapping new sources of income as the city seeks to minimise the impact on residents. Cost-cutting can be a two-edged sword in a fragile economic cycle.