Embrace emerging opportunities | Orchestrate sustainable growth; EY recommendations for 2026-27 Hong Kong Budget

• EY recommends that the Government drive innovation on a solid fiscal foundation and work together to expand new horizons for Hong Kong’s high-quality development.
• Hong Kong should press ahead with targeted capital investments in new areas including technology-driven initiatives and the development of the Northern Metropolis, guided by the National 15th Five-Year Plan.
• Estimated fiscal deficit of HK$0.5 billion with a fiscal reserve of HK$653.8 billion in the financial year 2025-26.

Ernst & Young Tax Services Limited (EY) estimates that the Hong Kong SAR Government (the Government) will record a fiscal deficit of HK$0.5 billion in the financial year 2025-26, a significant improvement compared with the HK$67 billion deficit originally forecasted in the Government’s Budget announced in February 2025. 

As a result of the estimated deficit for the fiscal year 2025-26, Hong Kong’s fiscal reserves will slightly decrease from HK$654.3 billion to HK$653.8 billion as of 31 March 2026.

Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “Guided by the National 15th Five-Year Plan, Hong Kong should press ahead with targeted capital investments in new areas essential to our long-term growth, especially technology-driven initiatives and the development of the Northern Metropolis. Strategic investment today is the cornerstone of sustainable progress tomorrow.” 

Land premium is expected to continue to be lower than the original estimate of HK$21 billion as was the case in the prior year. On the other hand, the stock market remains robust and stamp duty revenue is expected to almost double, exceeding the original estimated HK$67.6 billion. Tax revenue, benefiting from the economic recovery, is expected to pick up this year as well.

Lee further says: “While there are signs of economic growth, we must still maintain a careful balance, pursing development while safeguarding fiscal sustainability. Financing long-term initiatives through debt issuance should be viewed as a tool for enabling sustainable growth, not as a source of concern. In parallel, we can also explore alternative models such as public-private partnerships to mobilize additional resources and expertise.” 

Powering progress: innovative polices, stronger platform to strengthen globalization

Wilson Cheng, EY¹ Hong Kong and Macau Tax Leader, says: “Hong Kong is well positioned to develop into an innovation-driven hub for IP and technology commercialization, particularly after the introduction of the Patent Box tax concession in 2024. To keep up the momentum, we should consider extending the current enhanced tax deduction for R&D expenditure to cover collaborative projects within the Greater Bay Area and allow a full tax deduction for R&D services conducted by overseas related-party service providers.”

Under the current tax legislation, expenses incurred for R&D services provided by overseas associates are not deductible, even if the transactions are supported by genuine commercial rationale. EY recommends that the Government revisit this policy, given that similar reforms have already been successfully implemented in other neighboring jurisdictions.

Ricky Tam, EY¹ Tax Services Partner, adds: “By refining tax and regulatory arrangements, Hong Kong can attract more multinational and Chinese mainland enterprises to establish their strategic, financial and operational bases in Hong Kong. Building on Hong Kong’s sound financial infrastructure, we believe Hong Kong is the most preferred platform for enterprises looking to go global.”

Karina Wong, EY¹ Greater China Private Tax Co-leader and EY Greater China Family Enterprise Leader, says: “The single family office tax concession has already achieved notable success. The Government should ride on this momentum to further strengthen Hong Kong’s standing as Asia’s leading cross-border private wealth management center. Expanding the scope of qualifying investments to cover collectibles and artifacts would align with global family office investment trends and reinforce Hong Kong’s status as a premier international art trading hub.

In addition, the Government may also consider extending the scope of the existing tax concession beyond single family offices to cover eligible multi-family offices and fund managers, so Hong Kong can better capture the growing demand for sophisticated wealth and asset management solutions and develop a more comprehensive family office service ecosystem.”

Future forward: building Hong Kong’s next chapter

As a leading international investment holding hub, Hong Kong should keep itself competitive by modernizing its tax regime in line with global commercial practice and the international tax landscape.

Paul Ho, EY¹ Financial Services Tax Leader for Hong Kong, says: “With the implementation of the global minimum tax on the horizon, Hong Kong is entering a new phase in international tax cooperation. It is essential for the Government to preserve Hong Kong’s compliance under the global minimum tax framework while continuing to attract investment and support sustainable economic development. A full review of our current tax legislation should be conducted to ensure the competitiveness of our tax concessions.”

The Northern Metropolis, as Hong Kong’s next engine of growth, should also be backed by a focused and competitive policy framework. This includes the integration of flexible land supply mechanisms with specific tax benefits targeting key sectors.

EY believes that the proposed fiscal measures will balance short-term economic support with long-term sustainability, thus positioning Hong Kong for a more inclusive and structurally robust recovery.

Lee emphasizes: “Through targeted and conditional supportive and relief measures for key industries and communities, citizens at large can benefit while the long-term economic development is taken into account. A sustainable fiscal approach must be adopted with precise deployment of public resources based on long-term growth objectives that preserves ample fiscal room for future generations. Only by balancing prudent financial management with social welfare can we embrace emerging opportunities and ensure every citizen feels the tangible rewards of long-term, sustainable prosperity.”

1. Ernst & Young Tax Services Limited

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