- Hong Kong announces 10,000 civil service job cuts by 2027.
- $11.2 billion deficit expected for the 2024-2025 financial year.
- 7% reduction in recurrent government spending through 2027-2028.
- Hong Kong to invest $1 billion in AI R&D and technology.
- Airport departure tax will rise 67% from third quarter of 2024.
Hong Kong’s government has announced plans to cut 10,000 civil service jobs and freeze salaries. Finance Secretary Paul Chan confirmed the city faces a budget deficit of $87.2 billion Hong Kong dollars ($11.2 billion) for the 2024-2025 year. This marks the third year of financial losses, leading to drastic steps to balance the budget.
In his budget speech, Chan also revealed a plan to reduce recurrent government spending by 7% by 2027-2028. This comes at a challenging time for Hong Kong’s economy, with a weak property market and growing geopolitical tensions adding to the strain.
The government will reduce its civil service by 10,000 jobs by April 2027. This means cutting 2% of the workforce each year for the next two years. Along with this, civil servant salaries will be frozen in 2024 to keep expenditure under control while maintaining essential services.
Chan emphasized that these cuts are necessary to tackle the growing fiscal deficit. He stressed that the government’s goal is “restoring fiscal balance” by reducing recurrent spending for long-term sustainability.
New Revenue Measures and Infrastructure Investment
In an effort to offset the deficit, Hong Kong will issue up to $195 billion Hong Kong dollars ($25 billion) worth of bonds over the next five years. These bonds will finance critical infrastructure projects, with a significant portion used to refinance short-term debt. The bond issuance is designed to maintain the city’s development momentum despite the financial strain.
Additionally, Hong Kong will increase its airport departure tax by 67%, raising it from 120 Hong Kong dollars ($15.50) to 200 Hong Kong dollars ($25.70). The hike will take effect in the third quarter of 2024, contributing to the government’s efforts to boost income and reduce the budget gap.
AI Investment and Technological Advancements
Hong Kong is placing a strong emphasis on artificial intelligence (AI) as part of its economic recovery strategy. The city aims to become an international hub for AI development, capitalizing on its well-established infrastructure and global connectivity.
To support this ambition, the government has allocated $1 billion Hong Kong dollars for an AI research and development institute. Furthermore, Hong Kong will establish a $10 billion Hong Kong dollar ($1.29 billion) innovation and technology fund, which will be used to support emerging industries critical to the city’s future growth.
Chan’s announcement highlights the importance of AI as a long-term growth sector. By fostering a dynamic AI ecosystem, Hong Kong hopes to strengthen its position as a global technology leader and attract international talent and investment.
Economic Background and Property Sector Challenges
Hong Kong faces serious financial struggles as the property market weakens. Over the past three years, home prices have dropped by about 30%. This sharp decline has hit government revenues hard. Land sales, which once contributed around 20% of the income, now account for just over 5%.
The drop in property revenue worsens the broader economic issues. Tensions between the US and China add to the uncertainty surrounding Hong Kong’s economy. The city’s financial reserves stood at $734.5 billion HKD ($94.5 billion) at the start of the fiscal year. By March 2025, they will fall by 12%, to about $647.3 billion HKD ($83.3 billion).
Shrinking Reserves and Long-Term Outlook
Hong Kong’s fiscal reserves are shrinking, forcing the government to make tough choices. The city’s reserves are expected to drop by another 10% in 2025-2026. This means Hong Kong’s ability to cope with economic challenges will depend on how well it implements its budget plans.
Despite the challenges, Finance Secretary Paul Chan remains hopeful. He believes the proposed measures will help Hong Kong recover. These include civil service cuts, salary freezes, infrastructure bonds, and investments in AI. Chan is confident that these actions will lead to fiscal recovery and long-term stability.
The government’s proposed budget cuts and revenue increases show a proactive response to the deficit. Although these measures may cause short-term pain, especially in the civil service, they are aimed at securing Hong Kong’s long-term financial health. The focus is also on making Hong Kong a global leader in technology and innovation.