Hong Kong budget 2026-27: ‘sweeteners’ for grass roots or the middle class?

Hong Kong’s improving fiscal position has prompted a groundswell of calls for the government to offer more “sweeteners” in the coming budget, including a cross-party demand for more tax relief for the middle class, but economists have cautioned against such across-the-board measures. They were more supportive of targeted spending, a cause taken up in recent weeks by concern groups asking for more specific forms of help for grass-roots residents, especially the unemployed. The growing debate was sparked by Hong Kong finance chief Paul Chan Mo-po’s disclosure last August that the city was set to achieve an early operating account surplus after three consecutive years of deficit. In February, Chan said that a stock market boom had helped the government’s operating account return to surplus in the 2025-2026 financial year – a year earlier than projected. The surplus could reach about HK$500 million (US$64 million), according to estimates by some accounting firms. The government rolled out one-off support measures totalling HK$8.3 billion last year, a 28 per cent year-on-year reduction from HK$11.5 billion in 2024 and an 86 per cent drop from HK$59.4 billion in 2023. With the improved public finances, there has been a growing chorus for more sweeteners in this year’s budget. Most political groups have pushed for expanding tax breaks for the middle class. The G19 bloc, formed by the Election Committee and functional constituency lawmakers, and the Business and Professionals Alliance for Hong Kong (BPA) have proposed raising the basic salaries tax allowance from the current HK$132,000. The G19 called for the allowance to be raised to HK$140,000, while the BPA hoped it would be increased to HK$152,000. They have also called for higher child allowances, as have other major parties. The Democratic Alliance for the Betterment and Progress of Hong Kong, the city’s biggest political party, and the pro-business Liberal Party are lobbying for a new tax allowance for families that hire foreign domestic workers. Lawmaker Ronick Chan Chun-ying of the G19 bloc said the middle class wanted more relief measures after the tight budgets of the past three years only offered them “little sweetness”. “While this year’s public account will perform better, it is time to add more sweetness,” Chan said. “The middle class have always contributed more, but their benefits largely come from their own efforts.” On the G19 bloc’s proposal to raise the salaries tax allowance to HK$140,000, Chan noted it would reduce tax revenue by about HK$740 million and have minimal impact on total income. Pointing out that the average daily turnover of the stock market in January stood at HK$250 billion, generating almost HK$300 million in stock stamp duty, Chan said: “Just about two days’ worth of stock stamp duty revenue is already enough to make all wage earners happier.” But economists cautioned against providing additional sweeteners too soon, citing the capital-account deficit and the substantial future repayment from bond issuance. They opposed the cross-party consensus to raise the salaries tax allowance, which would reduce the number of taxpayers and undermine the government’s second-largest source of revenue, accounting for nearly 16 per cent of the total revenue for 2024-25. Economist Simon Lee Siu-po of the Chinese University of Hong Kong’s Shenzhen Finance Institute said the operating account surplus was driven by the stock market rally, and that the figures also included bond proceeds, which did not provide a sound basis for large-scale relief measures. “We have been fortunate this financial year as the stock market performed well, and our financial position would be precarious amid a market downturn,” he said. “Measures like public housing rent waivers and tax rebates are manageable since they are one-off, but long-term sweetener measures are not suitable.” He stressed that authorities needed to proceed with caution when raising the tax allowance, as this would have a long-term impact. “Land revenue has fallen sharply, and without other sources to cover the shortfall, it does not add up,” Lee noted. Professor Andy Kwan Cheuk-chiu, director of the ACE Centre for Business and Economic Research, suggested this year’s budget adopt a “defensive approach” to reduce expenditure further amid a structural deficit while keeping sweeteners to a minimum. Kwan pointed to the government’s bond issuances to fund infrastructure and the Northern Metropolis megaproject, which must be repaid with interest, saying it would be contradictory to increase spending on sweeteners amid such financial obligations. The government raised nearly HK$140 billion from bond issuances in the first three quarters of 2025-26 and repaid more than HK$30 billion in bonds. While it was still in need of a stable and sustainable revenue source, Kwan said raising the tax allowance ran counter to that goal. He added that the middle class had benefited from the stock market boom and a stabilising property market, as he urged authorities to focus on relief measures for lower-income residents. “The middle class have jobs, the fall in property prices has moderated, and the stock market has gone up. Do not tell me they are broke,” Kwan said. “With the unemployment rate rising, the grass roots really need help. Supporting them would be better than giving handouts to the middle class.” Professor Terence Chong Tai-leung, executive director of the Chinese University of Hong Kong’s Lau Chor Tak Institute of Global Economics and Finance, also called for targeted aid for those hardest hit during the economic recovery and transition. “Distributing several hundred million [Hong Kong] dollars to target the unemployed would already provide them with substantial help,” he said. Chong proposed a one-off subsidy for workers in sectors with unemployment rates exceeding 7 per cent who had lost their jobs due to the importation of labour. Sze Lai-shan, deputy director of the Society for Community Organisation, expected that improved public finances would enhance financial support for lower-income residents, such as higher retraining subsidies for the unemployed. “The grass roots have experienced a tough year, particularly due to the import of labour, and many shops and companies have closed down,” she said. “Some workers have seen their wages cut, and some reported increasing difficulty in securing jobs.” The group also called for an unemployment and underemployment assistance system offering short-term allowances. Sze also called for an increase in the working family allowance and the subsidy under the Comprehensive Social Security Assistance scheme, and reintroducing an axed HK$2,500 student grant, but only for lower-income families, citing their heavy education expenses. In a bid to step up government expenditure cuts, 58 large social welfare organisations receiving more than HK$50 million annually were set for a 7 per cent reduction in funding by 2027-28, while 121 small to medium-sized groups would face a 3 per cent cut. Social welfare lawmaker Grace Chan Man-yee urged the government to halt planned funding cuts to social welfare organisations in light of a return to a balanced budget, expressing concerns over degrading service quality and heavy pressure on frontline staff. “The government should stop cutting social welfare expenses. It is a form of social investment, and reducing it will bring greater long-term costs,” she said. The legislator also expected the government to increase support and funding for social welfare groups, particularly for the use of technology in services. Ronick Chan, who chaired the legislature’s Finance Committee in the previous term, urged the government to remain prudent in its financial planning, citing geopolitical tensions and the slower pace of US interest rate cuts. “In 2025, various positive factors came together: US rate cuts, strong stock market performance and a booming market. Everything in investments did well,” he said. “But 2026 might not be as good as last year.”