EY comments on Hong Kong Budget 2025-26 — Shaping the economy through fiscal consolidation and sustainable growth

The Hong Kong SAR Government (the Government) announced the Hong Kong Budget 2025-26 (the budget) today, in which a revised deficit of HK$87.2 billion will be recorded for the financial year 2024-25, which is slightly shy of double of their original forecast of HK$48 billion. Amid uncertainties in the global economic outlook, including the challenging international geopolitical landscape, the Financial Secretary (FS) adopted a “reinforced version” of the fiscal consolidation program, including containing public expenditure while minimizing the impact on public services and people’s livelihood.

Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “The estimated budget deficit for 2024-25 of HK$87.2 billion is partly due to reduced revenues from land premium and stamp duties. As previously advised by the FS, he has continued to predict a deficit position for 2025-26, albeit smaller. The EY team is pleased to see the Government continuously reviewing the efficiency of public spending while also considering the need to maintain and improve public services. We support the Government's ongoing efforts to assess policy effectiveness, promote investment and ensure that resources are allocated to those who truly need them.”

The FS emphasized that proceeds from bond issuance will be used to invest in infrastructure, but not to fund government recurrent expenditure, which is the fiscal discipline that the Government has been strictly adhering to.

Lee adds: “We agree that issuing bonds to support infrastructure development is a common and acceptable practice. We are glad to see that the FS is strongly committed to the fiscal discipline of not using bond issuance to fund recurrent expenditure. We believe that so long as bond issuance is contained at a prudent level, capital can be utilized flexibly and for investing in Hong Kong’s future economic development on a long-term and sustainable basis. In addition, Government-led bond issuance should be conducive to the development of the overall bond market in Hong Kong which should further enhance our international financial center status.”

Paul Ho, EY¹ Financial Services Tax Leader for Hong Kong says: “Given the current economic environment, we believe that public resources must be properly allocated to ensure that such expenditures support the long-term development of the overall economy and provide funding in a sustainable manner. In the long run, the Government should also actively seek economic transformation to create new development opportunities for Hong Kong.”

Compliance with international tax standards

The Government submitted a bill to the Legislative Council in December 2024 to implement the global minimum tax and Hong Kong minimum top-up tax (HKMTT). The FS stated that the global minimum tax and HKMTT could bring approximately HK$15 billion in additional annual revenue for Hong Kong starting from 2027-28.

Ho also says: “While complying with international tax standards and protecting Hong Kong’s taxing rights, it is important for Hong Kong’s tax regime to preserve its advantages in terms of its simplicity, certainty and transparency. Importantly, local small and medium enterprises and multinational enterprises that do not meet the EUR750 million revenue threshold would not be impacted. The estimated HK$15 billion additional tax revenue should be somewhat a helpful boost to the Government’s recurring revenue.”

Strengthening Hong Kong as an international asset and wealth management center

The Government is formulating proposals on the preferential tax regimes for funds, single-family offices and carried interest this year, including expanding the scope of “fund” under the tax exemption regime, increasing the types of qualifying transactions eligible for tax concessions for funds and single-family offices, enhancing the tax concession arrangement on the distribution of carried interest by private equity funds.

Ho further adds: “We are pleased that the Government is actively engaging and discussing with the industry to further promote the development of family offices and the asset and wealth management sector. We are confident that these measures will further enhance our competitiveness as an international asset and wealth management center and attract more talent and investment to Hong Kong. We hope that the enhanced policies can be put into place soon so that the industry can benefit early.”

Providing tax incentives

Wilson Cheng, EY¹ Hong Kong and Macau Tax Leader says: “As mentioned by the FS, intellectual property (IP) is an important foundation for the development of emerging industries. We are pleased to hear that the Government will review the relevant tax deduction arrangements for various expenditures, including lump sum licensing fees for acquiring the rights to use IP, and related expenses incurred on purchase of IP or the rights to use IP from associates, so as to accelerate the development of IP-intensive industries and promote the development of IP trading in Hong Kong.”

Cheng also says: “We are glad to see that, in order to drive the development of maritime services, the Government now proposes to provide half-rate tax concession to eligible commodity traders. Hong Kong, as a renowned international port, our strategic location and advanced infrastructure well-positions us to be a key hub for maritime services in Asia and beyond. We trust that the proposed tax incentive will further strengthen Hong Kong’s leading position as an international maritime center.”

Supporting our people and households 

Ricky Tam, EY¹ Tax Services Partner comments: “The proposed reduction of the final salaries tax and tax under personal assessment for the year of assessment 2024-25, capped at HK$1,500, is half of that of last year. Considering the current fiscal position of Hong Kong, we consider that it is appropriate and understandable for the Government to scale back on the tax reduction and hope that through other non-tax measures, the livelihood of our citizens and families can still be maintained.”

“The Budget proposes a review of the Government Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities (i.e. the $2 Scheme), replacing it with the "$2 flat rate cum 80 per cent discount" concession, with a monthly cap of 240 rides. Tam says: “Considering the current fiscal situation and the on-going trend of an increasingly aging demographic, the Government's review of the ‘$2 Scheme’ is a constructive initiation. We are in support of the Government’s continuous assessment of the overall allocation of public resources and the sustainability of various measures in supporting our elderly citizens.”

1. Ernst & Young Tax Services Limited

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