Hong Kong’s Support Measures for Businesses 2020
Hong Kong’s 2020-21 budget, announced last week, brought some much-needed good news for residents and businesses.
It contains unprecedentedly generous relief measures to revitalise the economy in the short-term, as it weathers prolonged political unrest, global trade tensions, and the Covid-19 outbreak.
It also addresses the city’s long-term plans, such as boosting technological innovation and financial integration with the Greater Bay Area (GBA).
Although we find that some blanket measures – particularly the cash giveaway to individuals – are not the most effective (see Question 1), we welcome the more targeted efforts, such as the expansion of digitisation subsidies. They are a reassuring sign of the government’s responsiveness to the needs of Hong Kong-based enterprises.
But, as we explain in Question 3, in order to steer Hong Kong’s economy in the right long-term direction, much more needs to be done by policy makers and by entrepreneurs themselves.
Highlights
General
- A HK$120b (US$15.4b) relief package (on top of the HK$30b in four rounds of support measures introduced since August 2019)
- Hong Kong’s first budget deficit since 2004 for the 2019-2020 fiscal year
- Hong Kong’s largest-ever deficit for 2020-2021
Tax cuts and other waivers
- 100% profits tax reduction on the first HK$20,000
- Waived business registration fees for 2020-21
- Rent and utility bill subsidies for eligible SMEs
Digitisation subsidies
- Subsidies for short term internships for STEM (science, technology, engineering and mathematics) graduates of local universities
- An expansion of the Technology Voucher Programme that helps SMEs fund digitisation projects
Recycling and green tech
- New round of rental subsidies for recycling enterprises
- A Green Tech Fund to support decarbonisation and green tech R&D/applications
- Subsidies for the installation of charging infrastructure for electric cars
Finance
- Special tax concessions to attract private equity funds
- Establishing a ‘connect scheme’ for borderless wealth management in the GBA
- Expand the channels for the cross-boundary flow of RMB funds in the GBA
Logistics
- A pilot technology subsidy scheme for the logistics industry
Individuals
- HK$10,000 (US$1,280) will be handed out in cash to all adult permanent residents
- 100% salaries tax reduction on the first HK$20,000
Get in touch with our Tax Advisory Manager Helen Wong to receive our full report on the Hong Kong 2020-21 budget. It contains a detailed outline of available support measures as well as comparative tax rate tables.
Analysis: Q&A
1. Will cash handouts help to stimulate the Hong Kong economy?
Yes, but a more targeted measure would have had a greater impact. A portion of the cash handed out will be spent in local restaurants and shops, but some of it won’t. As our Hong Kong Tax Advisory Manager Helen Wong points out, many will decide to save that money or spend it abroad. More critically, the giveaway will have an insignificant impact on the spending power of higher-income people. Targeted handouts for lower-income groups, in the form of spending vouchers, would have been more effective.
Some of us at Fiducia have decided to donate our portion to local charity organisations where the funds can be put to better use. If you’re interested in doing the same, get in touch with our CSR manager Anne Vuillin who can tell you more about this.
2. Is it worrying that Hong Kong will run a budget deficit for the first time in 15 years?
No. Just like companies, countries often need to apply leverage wisely to invest more than they’re earning in order to expand. A budget deficit is worrying when it results from, or signals, financial irresponsibility, but that’s not the case of Hong Kong right now. The government is still strongly backed by US$150b in fiscal reserves (and more than US$440b in foreign exchange reserves).
3. Will these relief measures prop up business confidence?
Hong Kong has been going through a rough patch. Some in the business community remain confident that it’s temporary. But others fear that current issues could potentially indicate, or catalyse, deeper structural problems. A competent government with political will is a major factor in avoiding near-term challenges from becoming long-term ones. If this year’s relatively bold budget is a first step towards more “hands-on” policy making, it will indeed boost confidence in Hong Kong’s future. For now, they are will offer temporary relief to some.
To revitalise and reshape Hong Kong’s long-term role as a business hub, a lot more can and should be done by both policy makers and entrepreneurs: more outside-the-box thinking and less top-down decision-making; bolder investments in technology and more all-rounded efforts to foster and attract talent; and most importantly, a more balanced pursuit of profits and purpose.
A silver lining in the current situation is that it might motivate both private and public decision-makers to take on these tasks sooner rather than later. At Fiducia, it already has.