The Speech on the 2026-27 Budget - Part 2

Budget Speech by the Financial Secretary (2)

Sustaining Momentum and Accelerating Economic Development

28. Hong Kong's economy has grown for three consecutive years, with overall sentiment steadily turning positive. Mega events are drawing visitors to Hong Kong, and international conferences have brought together global political and business leaders, fostering deeper exchanges and collaboration:

(a) More buoyant asset markets: The stock market has shown encouraging momentum, with total market capitalisation rising to $50 trillion. IPO activities were also vibrant. Sentiment in the residential property market has turned positive. Total bank deposits exceeded $19 trillion as at the end of last year, increasing by 12 per cent year-on-year, with capital continuing to flow in. The asset management sector is also faring well, with net fund inflow of $357 billion to funds domiciled in Hong Kong. Hong Kong ranked third globally and first in the Asia Pacific in the Global Financial Centres Index. Hong Kong is expected to become the world's largest cross-boundary wealth management centre in one to two years.

(b) Accelerated convergence of enterprises and talents: The Office for Attracting Strategic Enterprises (OASES) has attracted over 100 strategic enterprises to establish in Hong Kong. Among them, 51 have been listed, and 76 set up their global or regional headquarters in Hong Kong, bringing in about $60 billion of investment and creating around 22 000 jobs. Invest Hong Kong assisted 560 enterprises in establishing or expanding their operations in Hong Kong last year, which is expected to generate about $70 billion of investment and create over 10 000 jobs. The number of companies in Hong Kong with Mainland or overseas parent companies and the number of start-ups in Hong Kong both rose by 11 per cent, hitting new highs. As regards talent attraction, the Top Talent Pass Scheme has drawn over 100 000 global elites to Hong Kong. We will continue to proactively attract investments and talents, injecting fresh impetus into Hong Kong's economy;

(c) Strengthening international connections: The establishment of the International Organization for Mediation in Hong Kong has further strengthened our status as the centre for international legal and dispute resolution services in the Asia-Pacific region. International conferences and exhibitions such as the Belt and Road Summit, Asian Financial Forum, Hong Kong FinTech Week, Hong Kong Maritime Week and InnoEx each drew thousands of global political, business and industry leaders. This year, we will sustain our efforts in deepening international connections, for instance, the Asia-Pacific Economic Cooperation Finance Ministers' Meeting will be held in Hong Kong for the first time;

(d) Soaring visitor arrivals drawn by mega events: Visitor arrivals approached 50 million last year, increasing year-on-year by 12 per cent, with non-Mainland visitors recording a growth of 15 per cent. Hong Kong boasts an extensive line-up of mega events. The National Games as well as the National Games for Persons with Disabilities and the National Special Olympic Games, which we co-hosted with Guangdong and Macao last year, enhanced Hong Kong's capability to organise large-scale sports events and deepened integration and collaboration among GBA cities. Less than a year after its commissioning, Kai Tak Sports Park has achieved the highest ticket sales in Asia and ranked third globally for its main stadium, registering the highest gross income of any stadium in Asia. In the coming year, mega cultural and sports events will follow one after another, showcasing Hong Kong's unique glamour; and

(e) Accelerating the development of the NM: Being a new engine for long-term development, the NM will inject fresh economic impetus into Hong Kong and support our new "South-North dual engine (finance-I&T)" industry pattern. We are accelerating its development through various measures, including adopting a large-scale land-disposal approach in land allocation and expediting the bringing in of enterprises and industries, as well as establishing two dedicated companies for San Tin Technopole and Hung Shui Kiu Industry Park respectively. We plan to introduce a dedicated legislation for the NM in the middle of this year.

Proactively Aligning with the 15th Five-Year Plan

29. The Recommendations for Formulating the 15th Five-Year Plan (The Recommendations) delineate the overall approach, strategic goals and major initiatives for our country's development in the next five years. It is a strategic blueprint for setting out the direction of the full implementation of Chinese modernisation.

30. The Recommendations also give explicit support to Hong Kong in better integrating into and serving the overall national development, consolidating and enhancing its status as an international financial, shipping and trade centre, while developing into an international I&T centre and an international hub for high-calibre talents. Hong Kong can contribute in various key areas:

(a) Contributing to building a modernised industrial system and accelerating high-level scientific and technological self-reliance of our country: With strong basic research capabilities, Hong Kong possesses unique edge in AI, life and health technology, fintech, as well as new materials and new energy. Being an international financial centre, Hong Kong will drive "Finance+", capitalising on our financial sector to better serve the real economy and industries with competitive edge, and pressing ahead towards mutual empowerment of finance and I&T. In so doing, we can leverage our strengths to serve the country's needs;

(b) Proactively participating in our country's development in promoting high-standard opening up: Hong Kong possesses unique institutional strength under "one country, two systems". With our efficient aviation, shipping and logistics services, we serve as a "super connector" and "super value-adder" to help enterprises go global and bring in external investments, fostering two-way trade and investment; and

(c) Bringing together high-calibre talents from across the globe: Hong Kong's world-class universities and internationalised environment are conducive to attracting and bringing in top global talents in various sectors, particularly leading experts in the scientific research field from around the world. We will keep nurturing local talents, aligning with the integrated development of "Education, Technology and Talent" of our country.

31. The Chief Executive will lead a cross-bureau, cross-departmental task force for Hong Kong to proactively align with the 15th Five-Year Plan, and for the first time, to formulate Hong Kong's five-year plan. We will integrate more actively into and serve the overall national development. With the synergy between a capable government and an efficient market, we aim at driving high-quality, high value-added and diversified economic growth.

International Innovation and Technology Hub

32. Technology changes are reshaping the global economic landscape and generating new consumption demand and investments, while fostering the integration of industries across boundaries. Technological innovation is driving industrial innovation profoundly.

33. Hong Kong's strengths in innovative scientific research and commercialisation of research outcomes lie in our internationalised qualities, strong research capabilities, support of financial sector and a rich pool of high-calibre talents. We are stepping up support measures such as computing power, land and capital, together with GBA cities' well-developed advanced manufacturing, to enhance our influence as a global source of original innovation.

Artificial Intelligence + (AI+)

34. We are pressing ahead with the industrialisation of AI and deepening its integration across various industries, while encouraging wider AI application, thereby achieving the target of adoption and utilisation by all.

Committee on AI+ and Industry Development Strategy

35. The application of AI technology is swiftly driving the process of industrial transformation. New technologies, new industries and new products are quickly emerging. I will establish and chair the Committee on AI+ and Industry Development Strategy to formulate strategies and create favourable conditions for AI to empower the transformation and development of industries. The committee will comprise experts, academics, enterprises and industry park companies with an initial focus on life and health technology and embodied AI.

Empower Industries through AI

36. In respect of basic research and development (R&D), the InnoHK Research Cluster has so far funded 16 laboratories specialising in AI and robotics technologies. Their research focuses on technologies like AI-driven robotics which could widely apply to industries such as healthcare, logistics, smart manufacturing and construction.

37. The $3 billion AI Subsidy Scheme launched by the Government has approved around 30 R&D applications in the fields of large language models, new materials and biomedicine, etc., to enhance local AI research standards and application.

38. We are making proactive efforts to align with the National AI+ Initiative by promoting "industries for AI" and "AI for industries" through application. The Hong Kong Artificial Intelligence Research and Development Institute Company Limited will come into operation in the second half of this year. The company aims to promote AI+ development and transformation of R&D outcomes. It will also advise on matters such as the governance framework and regulatory regime for AI development.

39. The Hong Kong Monetary Authority (HKMA) and Cyberport have recently commenced trials for the second cohort of sandbox, focusing on "AI vs. AI" strategies for promoting secure and responsible AI application in the banking sector.

Computing Infrastructure

40. Hong Kong's overall computing power has now reached 5 000 petaFLOPS, laying an important foundation for supporting AI development.

41. The data facility cluster at Sandy Ridge, which can provide a gross floor area of 250 000 square metres, will further enhance Hong Kong's overall computing power. The tender result of the site will be announced shortly. The cluster will render crucial support for data and computing power required by the use of AI.

AI Training for All

42. AI brings new opportunities to society and employment market. The key is to popularise the understanding and use of AI by all levels of society.

43. We will invite public organisations to organise, in collaboration with technology enterprises and tertiary institutions, AI application courses, seminars and competitions targeting students, young people and members of the public for enhancing their AI awareness and application skills, and to be responsible AI users. We will allocate $50 million to take forward this initiative.

44. In the 2025/26 to 2027/28 triennium, the University Grants Committee (UGC)-funded universities will introduce a total of 27 undergraduate programmes related to STEAM, including AI, creative industries, data science, etc. As regards self-financing post-secondary institutions, AI-related programmes will be given priority to be included in the Study Subsidy Scheme for Designated Professions/Sectors starting from 2027/28 academic year. Meanwhile, the Vocational Training Council (VTC) also includes AI application in the compulsory modules on Information Technology for all of its Higher Diploma programmes.

45. The Employees Retraining Board (ERB) will be upgraded as Upskill Hong Kong, providing various types of skill-based training courses, including AI application, thereby enhancing the competitiveness of the local workforce.

46. The Quality Education Fund has earmarked $2 billion to take forward digital education in primary and secondary schools by offering school-based AI education programmes and subsidising students to participate in related activities. We also provide AI training for teachers.

Data Utilisation

47. To further enhance the utilisation of data within the Government, we will allocate additional resources to the Census and Statistics Department (C&SD) to expand its consulting and analysis services on data science for bureaux and departments, with a view to identifying pain points in operations and proposing corresponding solutions.

48. The C&SD will launch a new online platform for interactive data dissemination service next month. Through integrating different types of statistical data, this platform enables enterprises and the public to conduct cross-subject analysis. A natural language data query feature will be introduced into the platform in the third quarter.

Empower Public Services through AI

49. Various departments are proactively leveraging AI and related technologies to promote digital intelligence for enhancing the standard of public services. For example:

(a) Traffic management: The Transport Department will explore the setting up of a traffic management platform integrating the use of big data analytics and AI, allowing comprehensive monitoring of real-time traffic conditions and enhancing management efficiency;

(b) Employment services: To provide better services for job seekers and employers, the Labour Department will utilise AI to optimise job matching;

(c) Flood alert: The Drainage Services Department (DSD) will enhance its smart flood forecast and alert system. Besides, the DSD has developed an AI large vision-language model to analyse the images captured by street cameras, thereby speeding up emergency response; and

(d) Landslide risk assessment: To enhance the Landslip Warning system, the Civil Engineering and Development Department will consolidate Hong Kong's rainfall data, landslide records and man-made slope data this year for conducting real-time and dynamic landslide risk assessment.

50. The Government has set up the AI Efficacy Enhancement Team to co-ordinate and steer government departments to apply AI, conduct process re-engineering and enhance efficiency. We will allocate $100 million for introducing leading technologies from the industry so as to accelerate digital intelligence transformation of the Government.

51. The Civil Service College will collaborate with the Digital Policy Office to provide AI training for civil servants to better grasp the relevant knowledge.

(To be continued.)

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Budget Speech by the Financial Secretary (10)

Public Finance

251. During the pandemic, several rounds of large-scale counter-cyclical measures were launched to support enterprises and safeguard jobs. These measures, though successful in stabilising the economy and protecting people's livelihood, have led to fiscal deficits in the past few years. The Budget last year introduced a reinforced fiscal consolidation programme, aiming at achieving fiscal balance through strictly containing the growth of government expenditure, suitably increasing revenue and consolidating the Government's financial resources. In addition, the scale of bond issuance would be enlarged. Last year, we set the target of attaining surpluses in the Operating Account from 2026-27 onwards and the Consolidated Account in 2028-29 respectively.

252. Over the past year, we have been fully committed to implementing the fiscal consolidation programme. As a result of the robust stock market and an accelerated economic growth, revenue from stamp duties and profits tax has increased by nearly $50 billion in total compared to the original estimate. In 2025-26, the Operating Account will return to a surplus ahead of schedule, while the Consolidated Account will be broadly balanced after taking into account the net proceeds from bond issuance.

253. In the medium term, the Operating Account will register a surplus throughout the period from 2026-27 to 2030-2031. The Capital Account will nevertheless still record a deficit annually, mainly due to a high level of capital works expenditure. As infrastructure projects are an investment in Hong Kong's future, we will meet the financing needs by suitably increasing bond issuance. During the period, fiscal reserves are expected to gradually increase to over $700 billion.

254. Overall, our public finances have seen significant improvement.

255. The Government has been upholding the principle of keeping the expenditure within the limits of revenues as enshrined under Article 107 of the Basic Law. We are striving to achieve fiscal balance in the economic cycle and ensure the resilience and sustainability of public finances.

Following through the Fiscal Consolidation Programme

256. We will continue implementing the reinforced fiscal consolidation programme put forward in last year's Budget. Key principles are as follows:

(a) to focus on strictly controlling government expenditure, supplemented by increasing revenue;

(b) to maintain the competitiveness of Hong Kong's simple and low tax regime, and to avoid raising tax rates substantially or introducing new taxes; and

(c) to uphold the "user pays" and "affordable users pay" principles as far as practicable in increasing revenue.

Strictly Containing the Growth of Operating Expenditure

257. We will continue strictly containing the growth of the Government's operating expenditure. Bureaux and departments will make sustained efforts to review their resource allocation and work priorities, and provide public services with better cost-effectiveness through consolidating internal resources, streamlining procedures and leveraging technology.

258. We will take forward the Productivity Enhancement Programme as planned. On the premise that Comprehensive Social Security Assistance (CSSA), Social Security Allowance and statutory expenditures will not be affected, the Government's recurrent expenditure will be cut by two per cent in both 2026-27 and 2027-28, delivering further savings of about $7.8 billion and $15.6 billion respectively over 2025-26.

259. The civil service establishment will be reduced by two per cent in each of the coming two financial years to an estimated level of about 188 000 posts by April 1, 2026, resulting in a cumulative deletion of over 10 000 posts within this term of Government.

260. Regarding the 2026-27 civil service pay adjustment, the Government will conduct the Pay Trend Survey in accordance with the established mechanism. The Chief Executive-in-Council will then make a decision having due regard to the six factors.

Increasing Revenue

261. On increasing revenue, we will uphold the "affordable users pay" principle in implementing the following measures:

(a) The rates of stamp duty on residential property transactions valued above $100 million will be raised from 4.25 per cent to 6.5 per cent, affecting about 0.3 per cent of residential property transactions. It is estimated that revenue will increase by about $1 billion per annum. This measure will take retrospective effect from tomorrow upon passage of the amendment bill by the LegCo; and

(b) Last year, we amended the Inland Revenue Ordinance to implement OECD's package by imposing the global minimum tax and implementing the Hong Kong minimum top-up tax on large multinational enterprise groups with an annual consolidated revenue of or above EUR750 million. This measure is expected to bring in an additional tax revenue of about $15 billion for the Government annually starting from 2027-28.

Consolidating and Optimising the Use of Government Financial Resources

Consolidating Funds Established Outside the Government's Accounts

262. As announced in last year's Budget, we have brought back $61.5 billion from six seed capital funds with a relatively large unspent balance to the Government's accounts for optimising the use of government financial resources. I have also instructed various policy bureaux to conduct a full review of the remaining 36 purpose-specific funds established outside the Government's accounts. After carefully assessing the individual circumstances of the funds, we propose:

(a) revising the financial arrangements of four funds to bring back their unspent balances, on the premise of supporting their operations in the next five years;

(b) closing a fund which has accomplished its policy objectives and two funds for which objectives can be met more effectively under the established funding mechanism, and bringing back their unspent balances;

(c) consolidating six funds into three for enhanced efficiency in the use of resources; and

(d) maintaining the financial arrangements of the remaining 23 funds.

The above measures are expected to bring back about $15.8 billion to the Government's accounts in 2026-27.

Transferring the Accumulated Surplus of the Bond Fund

263. The Bond Fund, established in 2009 outside the Consolidated Account, aims to support the issuance of bonds including Silver Bonds, iBonds and alternative bonds under the Government Bond Programme (GBP). Since 2024, Silver Bonds have been issued under the Infrastructure Bond Programme instead, with the proceeds being credited to the Capital Works Reserve Fund. The majority of bonds issued under the GBP will be held to maturity for redemption by the end of this year.

264. By the end of March, the balance of the Bond Fund is estimated to be about $150 billion, with an accumulated surplus of about $37 billion after deducting outstanding bond balances and interest payments etc. To optimise the use of the surplus of the Bond Fund, the Government will introduce a resolution to the LegCo to enable the transfer of the accumulated fund surplus to the Consolidated Account in 2026-27.

Transferring Investment Income of the Exchange Fund

265. The Exchange Fund achieved record-breaking performance last year, delivering an investment income of $330 billion. As at the end of last year, the total value of assets under the Exchange Fund exceeded $4.1 trillion, which would suffice to maintain monetary and financial stability in Hong Kong. On the premise that the Exchange Fund's function to maintain the stability and integrity of the local monetary and financial systems will not be compromised, I propose, under the Exchange Fund Ordinance, transferring $75 billion in each of the coming two financial years, totalling $150 billion, from the Exchange Fund to the Capital Works Reserve Fund in support of the NM and other infrastructure projects.

Bond Issuance

266. Last year's Policy Address announced that the Government would earmark an additional $30 billion in the next two to three years to increase expenditure on works projects for driving sustained economic development. The Government's capital works expenditure is estimated to be about $128 billion for 2026-27. Capital works expenditure will remain at a similar level during the Medium Range Forecast (MRF) period.

267. The Government has since 2019 and 2024 issued green bonds and infrastructure bonds respectively. Issuing bonds allows the Government to invest in infrastructure, while diversifying the development of the local bond market.

268. As the Government will accelerate the development of the NM and other public works projects relating to the economy and people's livelihood, we plan to raise the total borrowing ceiling of the two bond programmes from $700 billion announced last year to $900 billion. About $160 billion to $220 billion worth of bonds will be issued in each of the next five years, about half of which will be used for re-financing the short-term debts incurred in recent years. In future, we will issue more longer-term bonds to align more closely the cash flow duration with project requirements.

269. During the MRF period, the ratio of government debt to GDP will rise from 14.4 per cent to 19.9 per cent, which is a highly prudent level and well below that of most advanced economies. I would like to reiterate that proceeds from bond issuance will be used to invest in infrastructure only, but not for government recurrent expenditure.

(To be continued.)

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