Hong Kong budget 2025: Deficit drives cost cutting

Hong Kong’s financial secretary Paul Chan delivered a tough budget, making hard decisions to address the city’s continuing deficit by reducing government expenditure and increasing charges. 

Chan emphasised that "strictly containing public expenditure is essential" and stressed the importance of taking a steady, prudent and careful approach to ensure balanced consideration of the various impacts that may arise during the process.

Nevertheless, Chan has high expectations for the future of Hong Kong. 

"I am confident because Hong Kong people are intelligent, creative and tireless in driving our economic development,” Chan stated during his two-hour budget speech.

Various measures are in place to boost revenue and stimulate the economy, including a HK$1 billion artificial intelligence (AI) research and development (R&D) investment, business incentives and more tourism funding.

The Hang Seng Index rose to a seven-month high shortly after Chan delivered his budget speech.

Key takeaways from Hong Kong budget 2025

• HK$1 billion allocated to set up an AI R&D institute
• Up to HK$195 billion in bonds issued by the government   each year over the next five years
• New mega-tourism events are planned with HK$1.23 billion for tourism promotion
• Expanded banking services with mainland China
• Halt on land sales for commercial use
• Senior civil servants’ pay frozen and 10,000 positions cut
• Air passenger departure tax hiked by 66 per cent to HK$200, generating around HK$1.6 billion

The economic numbers

Hong Kong’s economic report card is highlighted by the deficit and moderate growth. 

There will be a consolidated deficit of HK$87.2 billion for 2024–25. Meanwhile, fiscal reserves are expected to be HK$647.3 billion by 31 March 2025.

In 2025–26, a deficit of HK$67 billion is expected, and the city’s fiscal reserves will decrease to HK$580.3 billion.

Hong Kong's economy recorded moderate growth of 2.5 per cent last year.

Financial secretary Chan also anticipates that the ratio of government revenue to gross domestic product (GDP) will stabilise at approximately 20 per cent beginning in the 2025–26 financial year. 

He also noted that the Anti-epidemic Fund, established during the COVID-19 pandemic to support affected individuals and businesses, has a remaining balance of approximately HK$15 billion.

The funds will be transferred back to the government’s accounts next month.

In his mid-term government finance forecasts, Chan projects that land premium revenue will remain at a “conservative level,” gradually increasing to 2 per cent of GDP by the 2026–27 financial year and beyond.

This forecasted growth falls below the 20-year average of 3.3 per cent.

Containing government expenditure

To manage public spending more effectively, the government announced a series of cost-control targets and measures:

• Recurrent expenditure reduction: The rate of reduction in recurrent government expenditure will be increased from the original 1 per cent to 2 per cent in 2025–26. This measure will be extended for two more years until 2027–28.
• Civil service downsizing: The civil service establishment will be reduced by 2 per cent in both 2026–27 and 2027–28. By 1 April 2027, approximately 10,000 posts are expected to be eliminated. In CPA Australia’s submission on the 2025–2026 Hong Kong Budget to the Hong Kong Government, CPA Australia recommended implementing tighter recruitment controls to help reduce the size of the civil service through natural attrition. 
• Adjustments to transport subsidies: The Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities (also known as the "$2 Scheme") and the Public Transport Fare Subsidy Scheme will be adjusted to achieve savings of HK$6.2 billion over the next five years.
• Pay freeze for senior officials: The government has proposed a pay freeze for executive authorities, the legislature, the judiciary and District Council members in 2025–26.
• Public service efficiency: Efforts will continue to enhance public service delivery through technology adoption, process streamlining and digital transformation. This announcement is consistent with CPA Australia’s submission suggestion of investing in technologies to improve the efficiency of public service delivery.

Consistent with CPA Australia’s submission recommendations, the Hong Kong government is proposing to raise revenue by increasing its fees and charges across several government services. As highlighted in the submission, compared to other advanced economies, Hong Kong has considerable room to increase revenue from levies, fees and charges. Proposed fee increases include:

• Air passenger departure tax: The tax will increase from HK$120 to HK$200 per passenger starting in the third quarter of the 2025–26 financial year.
• Application fees for talent and investor schemes: A HK$600 fee will be introduced under various talent- and capital-investor admission schemes, effective immediately.
• Tunnel and trunk road tolls: The Transport and Logistics Bureau will review tolls for government-managed tunnels and trunk roads under the "user pays" principle.
• Traffic-related charges: The government will review the annual licence fee for electric private cars, parking meter charges and fixed penalties for traffic offences to enhance traffic management.
• Betting activities: The government will explore regulating basketball betting activities and invite The Hong Kong Jockey Club to submit a proposal.

Bonds and banking services boost 

• To support the progress of key infrastructure projects in the city, Chan said that the government will issue bonds valued between HK$150 billion and HK$195 billion annually under the Government Sustainable Bond Programme and the Infrastructure Bond Programme. Approximately 56 per cent of the bonds issued will be allocated to refinancing short-term debts.
• Banking and e-payment services between Hong Kong and Mainland China will be expanded, so from March 2025 the city’s banks can do card business with their branches over the border.
• The government will conduct research into the current regulatory regime for the issuance and transactions of digital bonds, exploring enhancement measures to promote the wider adoption of tokenisation in Hong Kong's bond market.

Supporting enterprises and businesses

To drive the growth of local enterprises and support their global expansion, the government will inject HK$1.5 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales, as well as the SME Export Marketing Fund and Trade and Industrial Organisation Support Fund, while also streamlining application processes.

To further assist local small- and medium-sized enterprises (SMEs) to enter the mainland market and boost e-commerce sales, the Hong Kong Trade Development Council (HKTDC) will launch the "E-Commerce Express" initiative. In collaboration with major e-commerce platforms, the program will offer Hong Kong enterprises one-to-one consultation services and thematic seminars.

The “E-Commerce Express” initiative should increase the number of growing small businesses. The CPA Australia Asia-Pacific Small Business Survey 2023–24 shows that businesses that make online sales an important part of their business are much more likely to grow.

Additionally, the Hong Kong Housing Authority has introduced the "Well Being Startup" program as a pilot initiative, providing rent-free shop premises in its shopping centres for young entrepreneurs to test their business ideas. 

CPA Australia welcomes this announcement. Our small business survey shows that initiatives encouraging more young people to run small businesses are likely to drive high-growth, digitally savvy, and innovative enterprises, creating  jobs and boosting exports.

• Salaries tax reduction: A 100 per cent reduction in salaries tax and tax under personal assessment for the 2024–25 assessment year, capped at HK$1,500. CPA Australia recommended a ceiling of HK$10,000 as well as an increase in the basic allowance from HK$132,000 to HK$150,000, as it has been unchanged for eight years.
• Profits tax reduction: A 100 per cent reduction in profits tax for the 2024–25 assessment year, capped at HK$1,500. CPA Australia recommended a ceiling of HK$10,000.
• Tax deduction on ship acquisition: To support the growth of Hong Kong’s maritime industry, the government will introduce a tax deduction on ship acquisition costs for ship lessors under an operating lease. Additionally, to further develop maritime services, a half-rate tax concession will be offered to eligible commodity traders. 
• Family offices: Following consultations earlier this year, including with CPA Australia, the government noted it will formulate proposals on the preferential tax regimes for funds, single family offices and carried interest this year. This includes expanding the scope of "fund" under the tax exemption regime, as well as increasing the types of qualifying transactions eligible for tax concessions for funds and single-family offices. 

Karina Wong, CPA Australia Greater China divisional council president, says the proposed tax incentives for family offices and investment funds will help attract more of them to establish themselves in Hong Kong.

"We hope to see these incentives expanded to include artwork, antiques and collectibles, as these alternative investments are highly popular among family offices.

"We also urge for the swift implementation of these tax incentives and measures, ideally with retrospective effect,” she says. 

Household relief and property changes

To ease financial pressure on individuals and businesses, the government announced several relief measures:

• Domestic property rates concession: A rates concession for domestic properties in the first quarter of 2025–26, capped at HK$500 per rateable property. This will apply to 3.12 million domestic properties.
• Non-domestic property rates concession: A rates concession for non-domestic properties in the first quarter of 2025–26, capped at HK$500 per rateable property. This measure will cover 430,000 non-domestic properties.
• Social security allowance: Eligible social security recipients will receive an added payment equal to half a month’s standard rate under the Comprehensive Social Security Assistance (CSSA) Scheme, Old Age Allowance, Old Age Living Allowance or Disability Allowance schemes.
• Stamp duty adjustment: The maximum property value eligible for the HK$100 stamp duty rate will be raised from HK$3 million to HK$4 million, effective immediately.

AI measures

Hong Kong is prioritising AI development and industry transformation through advanced research and practical applications. 

A HK$1 billion investment will fund the establishment of the Hong Kong AI Research and Development Institute. The institute will focus on upstream R&D, the commercialisation of research outcomes and expanding AI applications.

Additionally, the government will review tax deduction policies for various expenditures, including lump-sum licensing fees and costs related to acquiring intellectual property (IP) rights. 

This initiative aims to accelerate the growth of IP-intensive industries and strengthen Hong Kong’s position as a hub for IP trading. 

ESG initiatives

To support the decarbonisation of both the international and local aviation industry, the government is promoting the adoption of Sustainable Aviation Fuel (SAF) at Hong Kong International Airport (HKIA). 

The Airport Authority completed a study on this initiative last year, and a SAF consumption target will be announced in 2025. This aligns with proposals in CPA Australia’s Pre-Policy Address Submission.  

Reactions to Hong Kong budget 2025

Anthony Lau, co-chairperson of CPA Australia's Greater China Taxation Committee

“It is expected that during the five-year period from 2025–26 to 2029–30, a total of about HK$150 billion to HK$195 billion worth of bonds will be issued every year under the Government Sustainable Bond Programme and the Infrastructure Bond Programme. 

“About 56 per cent of the bonds issued will be used for re-financing short-term debts. We endorse the scale of issuance, as Hong Kong has a relatively low debt to GDP ratio.”

Janssen Chan, chairperson of CPA Australia's Greater China SME Committee and co-chairperson of the Greater China Taxation Committee

"We are pleased to see the government's support for the development of e-commerce among small and medium enterprises. The CPA Australia Asia-Pacific Small Business Survey 2023–24 shows that e-commerce is a key driver of high-growth small businesses. 

“Additionally, the extension of the principal moratorium arrangement of the SME Financing Guarantee Scheme announced in November will help alleviate cash flow pressures for SMEs. To further support SMEs, we recommend that the government consider increasing the threshold for the half tax rate for profits tax from HK$2 million to HK$3 million.”