Hong Kong 2016-17 Budget Insights

An innovative budget to address a “new economic order”

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In concluding his ninth budget address, the Financial Secretary referred to Hong Kong’s qualifying campaign for the 2018 football World Cup, the never-say-die spirit exhibited during one match and how this had led him to believe that Hong Kong can overcome the challenges it faces.

For Mr. John Tsang, the challenges were the result of a “new economic order” fashioned by breakthroughs in IT developments which have impacted both traditional and emerging industries. It led to a more open market ecosystem and caused ground-breaking paradigm shifts that have impacted existing market players.

Having thus identified the challenges faced by team Hong Kong, fans should not have been disappointed by Mr. Tsang’s proposed plan to meet those challenges by diversifying Hong Kong’s economy. In today’s budget speech, the usual monologue concerning the four pillars of Hong Kong’s economy was dropped. Instead, Mr. Tsang opted for a more creative game plan concentrating on nurturing innovation, finding new markets and fostering talent with initiatives aimed at applying R&D, promoting Fintech enterprises and start-ups, leveraging the Belt and Road Initiative and increased training programs in the area of technology and innovation.

However, whilst fans always welcome new signings by their team, concerns are sometimes raised as to whether the right signings have been made and whether the team will reap a reward commensurate with the price paid. Having presented his plans to diversify Hong Kong’s economy, certain commentators may be keen to learn what performance measures Mr. Tsang and the government have in mind with which to evaluate whether these innovative policies deliver results and are worth the prices paid. These concerns are perhaps heightened given Hong Kong has no track record in certain of the areas Mr. Tsang proposed to develop. That said, having been censured in the past for a lack of creativity and forward thinking, the Financial Secretary should perhaps receive some plaudits for trying something new.

Not new was the inclusion of sweeteners in today’s budget, the handing out of these goodies becoming somewhat of an annual rite which the home fans would otherwise miss. The fans expected, and Mr. Tsang did not disappoint. Indeed, the calorific value of this year’s sweeteners was larger than that of last year. It will be interesting to observe if such sweeteners continue to be handed out in future, the benefits to Hong Kong’s economic health of handing out the annual goodies coming under ever increasing scrutiny. Some commentators have argued that rates waivers and salaries tax concessions, whilst no doubt welcomed by Hong Kong’s middle class, have done little to reduce the gap between Hong Kong’s rich and poor nor address concerns over Hong Kong’s ageing population or its narrow tax base.

Whilst Mr. Tsang might argue that the estimated overall increase in “livelihood related expenditure” in the areas of education, social welfare and healthcare services will address some of these concerns, social commentators are likely to argue the increases are not of sufficient magnitude, whilst fiscal commentators will note that Hong Kong’s narrow tax base remains the elephant in the room that has yet to be addressed by Mr. Tsang or any of his predecessors.

Overall, Mr. Tsang delivered a game plan that was more creative and displayed more innovative thinking than compared with prior years.


  • Reduce profits tax, salaries tax and tax under personal assessment for 2015-16 by 75%, capped at $20,000
  • Raise basic and single parent allowance from $120,000 to $132,000; raise married person’s allowance from $240,000 to $264,000
  • Raise dependent parents/grandparents allowance from $40,000 to $46,000 (for those aged 60 or above) and from $20,000 to $23,000 for those aged 55-59; the additional parents/grandparents allowance will also be increased in the above amounts respectively for taxpayers living together with their parents/grandparents
  • Raise the deduction ceiling for elderly residential care expenses from $80,000 to $92,000
  • Waive government rates for 2016-17, capped at $1,000 per quarter for each rateable property
  • Provide one additional month of Comprehensive Social Security Assistance payment, Old Age Allowance, Old Age Living Allowance and Disability Allowance
  • Waive business registration fees for 2016-17
  • Waive licence fees for tourism-related industries including food outlets for a year
  • Extend tax deductions for capital expenditure on the purchase of intellectual property rights to cover layout-design of integrated circuits, plant varieties and rights in performance
  • Issue “inflation-linked retail bond” (iBond) worth up to $10 billion; issue “Silver Bond” (targeting at Hong Kong residents aged 65 or above)

Our Budget Insights summarizes the key proposals contained in the budget and our views thereof.