<div id="readability-page-1">Simon Leung has been without a full-time job since his contract ended in March 2024, after the Hong Kong government cut its budget for NGOs by 7 per cent. The social work event coordinator, who is in his late forties, now makes ends meet through gig jobs. With word spreading that the city’s coming budget will yield an early operating surplus, he wants Financial Secretary Paul Chan Mo-po to restore funding for non-governmental organisations so retrenched workers like him can be hired again. “They should increase the budget back to the previous level,” the civil engineering graduate from Queen’s University in Canada told the South China Morning Post. Like other Hongkongers, Leung hopes his sector will receive attention in next Wednesday’s budget. Yet, others question whether such relief measures ought to be weighed against plans for the longer-term future riddled with uncertainty. Even short-term measures, they argued, must be plugged into the big picture of the city’s ambitions – to stay ahead as an international financial centre while ensuring a liveable, affordable home for its residents. From deficit to sound fiscal health With a booming IPO sector and a thriving financial market, most economists and analysts polled by the SCMP were upbeat about Hong Kong’s fiscal health. Yet, they cautioned that the city was undergoing a difficult transition and any early celebration of fiscal sustainability might be unwarranted. Several noted that technology investments would need at least half a decade to yield results, even as the burden of an ageing population weighed on the city. Economists and pundits alike urged the city to identify new financing means to invest in the future while fulfilling its mission to attain China’s national goals. These were formidable tasks, they said, along with intensifying geopolitical headwinds, with the city bound to be caught in the crosshairs given its international financial centre status and sandbox role for experiments.     Data shows Hong Kong’s economy has maintained its growth momentum for three consecutive years, with the latest government estimates putting gross domestic product gains for 2025 at 3.5 per cent. This is better than earlier government predictions of between 2 and 3 per cent, and higher than the 2.6 per cent growth in 2024. Total exports of goods rose by 21.6 per cent in December 2025 and by 12.8 per cent for the whole year. Hong Kong’s retail sales also edged up by 1 per cent last year after a 7.3 per cent decline in 2024. In the financial market, the Hong Kong Monetary Authority reported that the Exchange Fund recorded an investment income of HK$331 billion (US$42.4 billion) in 2025, a record high and marking the first time all main components achieved positive returns since 2020. Hong Kong was also the top initial public offering fundraising venue globally last year, with proceeds rising by 231 per cent year on year to US$37.4 billion from 119 listings. The Hang Seng Index rose by 23.7 per cent over the last year to 26,567 points as of February 13, and the high daily turnover meant bountiful stamp duty takings. The consolidated budget of 2025-26 is expected to return in the range of a HK$500 million surplus to a deficit of HK$900 million, according to accounting firms and associations. Anthony Lau, Hong Kong tax and business advisory leader at Deloitte China, said he expected the city to be in strong fiscal health. “Hong Kong’s current debt level remains healthy, with outstanding government debt at 12 per cent of GDP,” Lau said, adding that it was significantly below the Asia-Pacific average of 96 per cent. Lee Shu-kam, head of Hong Kong Shue Yan University’s economics and finance department, estimated that the actual consolidated deficit would be much less than the HK$67 billion projected for 2025-26. “I think overall the fiscal health is robust … The reserves are stable at over HK$600 billion, thus, concerns about reserves may have eased for now,” Lee said.  While the government’s revenue fluctuated between HK$549.4 billion and HK$659.4 billion from 2023-24 to 2025-26, total expenditure surged steadily to an estimated HK$822.3 billion for 2025-26. Social welfare and health recurrent expenditures ballooned to HK$130.4 billion and HK$115.3 billion, respectively, driven by the needs of an ageing population and enhanced care schemes. The city’s unemployment rate also stood at 3.8 per cent from October to December last year, the second-highest point since 4 per cent for July to September 2022. Land premiums, a traditional source of government revenue, have been hovering at a low level, reaching HK$21 billion this year, accounting for only 3 per cent of total revenue, dropping from 24 per cent in 2019. The government had to borrow and finance infrastructure and the building of innovation hubs by issuing more bonds. Hong Kong’s fiscal reserves, estimated at HK$580.3 billion by March this year, represent about eight months of government expenditure, down from 28 months during its peak. To buy time for developing the city’s new economic engine, the finance chief last year launched initiatives to cut costs, including reducing civil service establishments, slashing recurrent government expenditure and overhauling welfare schemes for the elderly such as transport subsidies. Billy Mak Sui-choi, a Baptist University associate professor, predicted that it could take five to 10 years for investments in new infrastructure and technology projects to slowly generate returns, requiring the government to cope and buy time in the interim. Government spending on information and communications technology rose from HK$7.76 billion in 2018-19 to an estimated HK$17.24 billion in 2025-26. The city’s gross domestic expenditure on research and development in 2024 also increased to HK$35.77 billion, representing a rise of 8 per cent from the year before. It accounted for 1.13 per cent of GDP in 2024.   Weaning off land sales for revenue Economist Simon Lee noted that the city had relied heavily on land-related revenue in previous years, which led to deficits when the property market performed poorly. “It is not that good in the short term as the government uses debt, call back of reserves in various bodies or funds to cover the deficit,” he said. “Hopefully, the worst time has passed, but the government still needs to solve the problem of overreliance on land premium and stamp duty, which vary greatly with the economy.” Lee proposed introducing a 5 per cent goods and services tax that could bring about HK$25 billion in stable income when the retail and catering sectors improve. But Stewart Leung Chi-kin, executive committee chairman of the Real Estate Developers Association of Hong Kong, said the government could still raise land revenue by allowing developers to pay land premiums in instalments, even for medium-sized plots. He said doing so would help developers recoup their investments faster and encourage them to bid for land. Leung said that the government often preset land tender reserve prices based on valuations calculated. When the market dropped, the government refused to lower prices, resulting in no takers and failed land tenders. He also urged the government to relax the nominal HK$100 stamp duty band to flats worth up to HK$6 million, saying there were fewer HK$4 million homes these days. “You cannot rely solely on real estate, but you also cannot immediately wipe out real estate,” Leung said. With smaller land revenue, the government expanded bond issuances from HK$120 billion in 2024-25 to an annual target of between HK$150 billion and HK$195 billion until 2029 to fund capital works projects. Mak pointed out that initial capital expenditure for investment projects would inevitably lead to a deficit in the first few years before generating returns. “I am not very worried; if you cannot repay the debt, it is a problem with your plan itself, not the act of borrowing,” he said.   Mak noted that borrowing money to invest in infrastructure was a financing issue similar to an individual securing a mortgage to buy a flat. “You … pay the down payment, and then borrow money to buy the flat; does anyone find it a problem?” he said. He noted that evaluating government public finance with the standards of a private enterprise seeking profit was incorrect. If the government only undertook profitable projects, there would be no roads, bridges, education or healthcare, he said. “If you do it, you might not get into trouble, but if you do not do it, you will definitely get into trouble, so do you do it?” Mak said. But he warned that borrowing money to support daily government expenses was not sustainable, likening it to using a credit card to pay for daily spending. According to the Basic Law, the city should keep its expenditure within the limits of revenue in drawing up its budget, and strive to achieve fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its GDP. The city’s debt-to-GDP ratio would stay at 12 to 16.5 per cent, according to the 2025-26 budget. Singapore operated on a balanced budget policy, and its gross debt-to-GDP ratio stood at 173 per cent as of December 2024. “Singapore has 170-something and will not burst, Hong Kong is 10-something per cent … what is there to be afraid of?” Mak said.  New industrialisation and geopolitical dangers ahead Anthony Lam Sai-ho, chairman of the Federation of Hong Kong Industries, defended the authorities’ move to pour money into some new sectors, saying the government was investing in a new industrialisation policy to build a complete ecosystem rather than just patching holes. “Actually, for Hong Kong’s future, I think the fiscal problem is not that big,” Lam said. He pointed to South Korea’s experience to justify the need for government subsidies to incubate new industries from the ground up. “If you look at South Korea, the government supported the LED screen industry, and now it still dominates the high-end market,” Lam said. Karina Wong, deputy chair of CPA Australia’s Greater China taxation committee, noted that Hong Kong was set to record a small consolidated fiscal deficit of HK$900 million in 2025-26 despite maintaining solid fiscal reserves. She explained that the outcome underscored the importance of focusing beyond short-term headline figures and strengthening long-term competitiveness. “Hong Kong can further diversify income by strengthening its free-trade port regime and expanding high-value commodity trading,” Wong said, adding that her proposal would help diversify the city’s economic base and enhance market depth. Lau Siu-kai, a consultant to the semi-official Chinese Association of Hong Kong and Macau Studies think tank, said the budget should focus on supporting projects that promoted cooperation between local and mainland Chinese companies, as the city needed to align with national development strategies. “The most important thing for Hong Kong to do is to help the country speed up the internationalisation of the renminbi by broadening and deepening the offshore renminbi financial market in Hong Kong,” Lau said, adding that the move was to promote the yuan as a reserve currency as envisioned by Chinese President Xi Jinping.   Lee Shu-kam noted China and other countries were worried that the United States might use its financial system, such as the Swift messaging network, as political weapons. This threat was driving the need for the country to actively seek out an alternative to the US dollar system to reduce risk and avoid “being led by the nose”, he said. “If you ask whether US-China rivalry and geopolitics push renminbi internationalisation forward, I think it is an accelerator. The US has always used its financial system to create threats … this makes China and other countries worry.” Lee said the city government could relax the usage of renminbi liquidity funds to allow cross-border mergers and acquisitions or project investments. “This can make the scope [of usage] wider,” he said. “This helps mainland enterprises develop overseas.” Ultimately, the city’s fiscal stability and reliability as an international financial centre were tied to its ability to serve national needs, Lee said. “If Hong Kong can help with renminbi internationalisation … [it will] cause funds to flow in,” he said. “This makes Hong Kong’s development better and tax revenue more stable, so it is an interaction.” On Wednesday, even as the likes of Simon Leung will be looking out for what is in the budget for him, the overall direction being charted will be watched by many more.</div>

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<p>Hong Kong's upcoming budget for 2026-27 is under scrutiny as citizens like Simon Leung, affected by a 7% cut in NGO funding, hope for restored financial support. While economists predict a fiscal surplus due to a booming IPO sector and retail growth, concerns remain about long-term sustainability amid an ageing population and geopolitical challenges. The city's GDP is projected to grow by 3.5% in 2025, with a healthy debt level at 12% of GDP. However, rising expenditures in social welfare and health highlight the need for new financing strategies to secure Hong Kong's future as an international financial hub.</p>

What’s at stake for Hong Kong as reflected in budget 2026-27?