Hong Kong update: Budget 2017-2018 - Financial Secretary pledges to boost pillar industries and promote diversified economic development
In his first Budget yesterday (22 February), the Financial Secretary, Paul Chan, pledged to consolidate and enhance the competitiveness of Hong Kong’s pillar industries and promote diversified economic development by supporting industries in which Hong Kong has advantages as well as emerging industries.
On the economy, Mr Chan reported that Hong Kong’s economic growth picked up over the course of 2016, after a weak performance in the first quarter. Overall, there was a modest growth of 1.9% in 2016. Unemployment averaged 3.4 per cent last year, sustaining a state of full employment in general. Underlying inflation rate was 2.3 per cent in 2016 – the fifth consecutive year of easing.
On the fiscal front, a Government surplus of HK$92.8 billion is forecast for 2016-17, and the fiscal reserves are estimated to reach HK$953.7 billion by the end of March 2017.
Looking ahead, in 2017, Mr Chan said that economic growth in the advanced economies will be modest and patchy. Uncertainties brought about by political changes in many parts of the world and rising populist and protectionist sentiments may render the global economic outlook volatile. With this in mind, he forecast GDP growth of two to three per cent in 2017.
Among the initiatives announced are those aiming to boost Hong Kong’s pillar industries, i.e. trading and logistics industry, financial services, tourism as well as business and professional services.
On maritime services, Invest Hong Kong would strengthen promotion activities overseas and in the Mainland with a focus on Hong Kong’s development as a regional maritime services hub, as well as a platform connecting the Mainland with the maritime industry in other parts of the world.
On the aviation industry, following the completion of the Hong Kong-Zhuhai-Macao Bridge, the Government will look at how to better connect Hong Kong and the Pearl River Delta region. Cross-boundary helicopter services will be considered to enhance connectivity. The Government also plans to introduce a bill into the Legislative Council in 2017 to amend the Inland Revenue Ordinance to offer tax concessions aimed at attracting aircraft leasing companies to Hong Kong.
As regards the air cargo industry, the Airport Authority Hong Kong (AA) has reserved land on both airside and landside to support the growth in transshipment, cross-boundary e-commerce and high value-added air cargo business.
Turning to Financial services, the Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited were analysing the views received during the consultation last year on proposed enhancements to the decision-making and governance structure for listing regulation.
To develop the asset and wealth management sectors, the Government proposes extending the profits tax exemption to onshore privately offered open-ended fund companies.
Mr Chan said Hong Kong has a narrow tax base, and as a small and open economy, is particularly susceptible to global economic fluctuations. The Government will therefore set up a tax policy unit in the Financial Services and the Treasury Bureau to comprehensively examine tax issues from a macro perspective.
On tourism, the industry would receive an additional HK$243 million in 2017-18 for initiatives including: light shows and home-grown mega events; tourism projects with local characteristics and green tourism elements; transit, overnight and cruise tourism passengers; enhanced publicity in the Mainland and overseas; and training through the Travel Industry Council of Hong Kong to enhance service quality.
For business and professional services, Mr Chan said Mainland enterprises have been active in making investments overseas and tapping overseas markets, and Hong Kong can capture business opportunities by capitalising on its quality professional services, socio-cultural advantages and rich international business experiences.
The Government would continue efforts to explore new markets for the local commercial sector and professionals, with the opening of a new Hong Kong Economic and Trade Office (HKETO) last year in Indonesia, and new HKETOs planned for Korea, India, Mexico, Russia, South Africa and the United Arab Emirates. The network of liaison offices in the Mainland will also be strengthened to provide a more even spread throughout the country.
Mr Chan also announced in his Budget Speech initiatives aiming to diversify economic development, with a focus on innovation and technology (I&T), creative industries as well as arts and culture.
The Government fully supports the Hong Kong Productivity Council (HKPC) in facilitating industrial upgrading and transformation for a shift towards high value-added production. The Government has also commissioned the HKPC to establish an Inno Space to turn innovative and technological ideas into industrial designs or products, with a view to expanding the start-up culture in Hong Kong and supporting re-industrialisation.
Mr Chan said he would set up a new committee on I&T development and re-industrialisation. The new tax policy unit will also explore enhanced tax deductions for I&T expenditure.
Start-ups will continue to be supported, for example via the HK$2 billion Innovation and Technology Venture Fund. The Fund will inject new capital and energy into technology start-ups in Hong Kong.
To help the development of financial technologies (Fintech), the Hong Kong Monetary Authority is developing a new Faster Payment System to provide a round-the-clock inter-bank real-time payment platform. The Government will also encourage the industry to make good use of the trial environment provided by the Fintech Supervisory Sandbox, so as to deliver more products and services based on different kinds of new technology.
On creative industries as well as arts and culture, Mr Chan said the vision is to shape Hong Kong into a trend-setting creative hub as well as a metropolis rich in arts and culture. The Government would sponsor a series of events in Hong Kong, overseas and in the Mainland to showcase the robust development of Hong Kong’s creative industries during the 20th anniversary of the establishment of the Hong Kong Special Administrative Region in 2017, including design exhibitions; film festivals; exhibitions on the works of Hong Kong comic artists and architecture; and fashion shows. Extra resources will also be allocated to support more local art groups and artists to perform in major overseas and Mainland cities to showcase Hong Kong’s cultural strength.
Mr Chan also explained three key objectives regarding public finance in his Budget: first, proactively develop the economy and improve people’s livelihood; second, invest continuously for the future and make Hong Kong an even more liveable city; and third, make good use of financial resources to build a fair and just society where people from all walks of life can share the fruits of economic advancement.
Mr Chan said the Government would continue to invest substantially to protect and enhance the environment and strive to further improve air quality, water quality, green and blue assets and waste management, as well as step up efforts to combat climate change and conserve nature, to make Hong Kong an even more liveable city.
To continue promoting wider use of electric vehicles thereby improving roadside air quality, the current First Registration Tax exemption arrangement for electric vehicles would be revised. From 1 April 2017 to 31 March 2018, First Registration Tax of electric commercial vehicles, motor cycles and motor tricycles will continue to be fully waived, while the First Registration Tax waiver for electric private cars will be capped at HK$97,500.
In conclusion, Mr Chan said amid global political and economic uncertainties, Hong Kong must invest for the future in a bid to enhance its overall competitiveness, apart from deploying resources to improve people’s livelihood. Through consolidating pillar industries, as well as nurturing industries over which Hong Kong has advantages and emerging industries, Hong Kong could explore new areas of economic growth and create quality and diversified employment opportunities.
Hong Kong Economic and Trade Office, London
The Government of the Hong Kong Special Administrative Region
18 Bedford Square, London WC1B 3JA, UK United Kingdom
Telephone: +44-(0)20-7499 9821
Fax: +44-(0)20-7495 5033
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