The Speech on the 2026-27 Budget - Part 5

Budget Speech by the Financial Secretary (5)

Enhancing Industries with Competitive Edge

122. The Recommendations, apart from further reinforcing Hong Kong's strategic position, support us to consolidate and enhance industries with competitive edge.

International Trade Centre

123. Facing a complicated and ever-changing geopolitical and economic landscape, we will consolidate and enhance our status as an international trade centre on all fronts through a series of policy initiatives.

Expand Commercial and Trade Network

124. Hong Kong will strengthen its role as the functional node for the Belt and Road (B&R) Initiative. We will collaborate with industry players to further develop the ASEAN and Middle East markets, and explore the potential of Central Asia, South Asia and North Africa markets. Meanwhile, we will forge more free trade agreements and investment agreements (IAs). We have concluded negotiations of IAs with Qatar, Bangladesh and Peru respectively, and are exploring the signing of new IAs with Saudi Arabia and Egypt.

125. Hong Kong has so far signed a total of 55 Comprehensive Avoidance of Double Taxation Agreements (CDTA), including those signed with Jordan, Maldives, Norway and Rwanda last year. We will further expand our CDTA network.

126. We will continue reaching out to relevant authorities in B&R regions to seek more project matching opportunities for Hong Kong enterprises and professional services, while encouraging and assisting external organisations to stage roadshows in Hong Kong. Outbound missions and project-matching activities will also be organised to promote our professional services.

Attract Enterprises and Investment

127. To further attract enterprises to set up in Hong Kong, last year's Policy Address announced that we would formulate preferential policy packages to promote industries and investment.

128. We have formulated a preliminary framework, which would take into account a series of factors, including the enterprise's industry and its technology level, as well as the potential economic contributions and employment opportunities it can bring to Hong Kong. Policy tools include land grant arrangements, financial subsidies and tax incentives. The preferential tax rates will be half-rate or five per cent. We will introduce an amendment bill this year.

129. Tax policy is a key component to economic competitiveness. In view of the evolving global tax environment in recent years, I will establish and chair an Advisory Committee on Tax Policy to gather views widely from commercial, industrial and professional sectors, so that Hong Kong's tax policy can reinforce economic development.

Support Mainland Enterprises in Going Global

130. As our country is advancing with high-level, two-way opening-up, more Mainland enterprises are actively expanding overseas markets. The Task Force on Supporting Mainland Enterprises in Going Global (GoGlobal Task Force) will organise promotional activities to attract Mainland enterprises to venture into global markets through Hong Kong. We will also set up a cross-sectoral professional services platform, bringing together Hong Kong's professional services providers in the field of legal services, accounting, financial services, testing and certification, marketing, etc. to support enterprises going global.

Support Local Enterprises

131. The growing popularity of online shopping and changing consumption patterns have posed challenges to some sectors. The Government is enhancing various measures to strengthen the competitiveness of SMEs.

132. The Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund) has been well-received by enterprises. The Government will inject $200 million into the fund, raise the funding ceiling of "Easy BUD" to $150,000 per application, and provide more targeted funding support for enterprises in AI application.

133. The Hong Kong Export Credit Insurance Corporation will introduce a pilot scheme this year to provide protection for SMEs engaging in exports with higher-risk buyers.

134. The Government will continue providing loan guarantees to enterprises through the SME Financing Guarantee Scheme. We have extended the application period for the 80% Guarantee Product to the end of March 2028 and also extended the application period for the principal moratorium arrangement to mid-November this year. The total loan guarantee commitment under the Scheme will increase by $20 billion.

135. Hong Kong's food industry can leverage its reputation for quality to further expand into the Mainland and international markets. We will continue seeking market access and simplified customs arrangements of the Mainland for a wider range of local food products. The Centre for Food Safety will waive the fees related to the certification of food products for two years. Besides, we will introduce a new unified brand for local agricultural and fisheries products in the middle of this year, supported by a certification, testing and traceability mechanism.

Convention and Exhibition Industry

136. To promote further development of the exhibition industry and brand building as an international convention and exhibition hub, the Government will earmark $100 million for attracting large-scale international exhibitions with new elements to Hong Kong through collaborating with relevant organisations on a pilot basis. Our objective is to develop Hong Kong into the first-choice platform for showcasing Mainland and international brands, while attracting high-spending business visitors to Hong Kong and driving high value-added economic activities.

International Aviation Hub

137. The Hong Kong International Airport (HKIA) is the world's busiest cargo airport. Its cargo throughput exceeded five million tonnes last year; and its passenger throughput reached 61 million, marking a year-on-year increase of nearly 15 per cent. We will strive to enter into new air services agreements and expand traffic rights with regions demonstrating development potential, such as the Middle East, Central Asia, Africa and South America, so as to further enhance Hong Kong's competitiveness as an international aviation hub.

138. The new passenger departure facilities at Terminal 2 of HKIA are scheduled to commence operations in May, which will substantially enhance the airport's overall capacity.

Airport City

139. The Airport Authority Hong Kong (AAHK) is proactively attracting businesses and investment to develop Airport City SKYTOPIA into a world-class landmark. Relevant developments include the AsiaWorld-Expo Phase 2, art storage facilities and the Yacht Bay, etc.

Aircraft Parts Processing and Trading Centre

140. The AAHK is pressing ahead with a leading overseas aircraft services company to provide professional services such as aircraft dismantling and parts recycling in Hong Kong, thereby developing Hong Kong into the first aircraft parts processing and trading centre in Asia.

Co-operation in Transport and Logistics

Collaborate with airports in the Greater Bay Area

141. Since the launch of the direct passenger service from Zhuhai to Hong Kong for passengers taking flights at HKIA, over 100 000 passenger trips have been made. The AAHK will step up promotion while enhancing the connectivity between Zhuhai Airport and the HKIA to encourage more travellers using the service.

Sea-Air Intermodal Cargo Transhipment Mode

142. The sea-air intermodal cargo transhipment mode operated by the AAHK in collaboration with Dongguan has attracted the participation of 27 airlines and 140 logistics companies. In addition, the construction of the intermodal pier under Phase 1 of the HKIA Dongguan Logistics Park has been completed. The remaining works are expected to complete within this year, targeted for commissioning in the first half of next year.

International Maritime Centre

143. Hong Kong will further align with the national maritime strategic development, and elevate our status as an international maritime centre. Meanwhile, we are striving to promote smart logistics and digital transformation in the industry, while expanding our cargo hinterland to secure more transhipment cargo.

Smart Port

144. The newly launched Port Community System (PCS) provides real-time tracking of sea, land and air cargo, fostering free flow of information among different industries. In addition, the PCS and Guangdong e-Port are connected to provide value-added services such as One-Data-Multiple-Declarations. More than 3 000 companies have registered with the PCS. We will continue leveraging the data provided by the PCS to bring greater values to the industry.

High Value-Added Maritime Services

145. We will introduce an amendment bill in the first half of this year to enhance tax concession measures for the maritime service industry and provide a half-rate tax concession to eligible commodities traders. All these will further promote the development of high value-added maritime services in Hong Kong.

146. To consolidate Hong Kong's premier position in ship registration, we will introduce an amendment bill this year to revamp the existing ship registration arrangements, including permitting dual registration arrangement to cater for the diverse operating models of international maritime enterprises.

Hong Kong Maritime Week

147. This year marks the 10th anniversary of the Hong Kong Maritime Week. We will organise more large-scale forums and seminars in collaboration with different international maritime organisations, with a view to enhancing Hong Kong's influence as an international maritime centre.

Green Shipping

Develop a Green Maritime Fuel Bunkering Centre

148. To develop Hong Kong into a green maritime fuel bunkering and trading centre, the Government will provide port dues concessions for vessels powered by green fuel as well as those carrying green fuels to attract more vessels to bunker green fuel in Hong Kong. An incentive scheme will also be launched for green vessels registered in Hong Kong to encourage green transformation of Hong Kong fleets. All these involve government subsidies of around $34 million. The Government will take forward a legislative amendment exercise this year to provide more anchorages for green maritime fuel bunkering operations.

Synergy of Financial and Maritime Services

149. The international maritime industry is undergoing green transformation. Substantial capital investments are needed for building new green vessels or retrofitting existing ones. Hong Kong will leverage our strengths to promote the co-development of financial and maritime centres.

Open up New Cargo Sources

150. We are fully committed to establishing a comprehensive "rail-sea-land-river" intermodal transport system connecting the inland region, striving to channel more inland cargo for export through Hong Kong. The relevant legislation will be amended within this year to extend the current arrangements under the Air Transhipment Cargo Exemption Scheme to other sea transhipment and sea-air transhipment modes.

Smart Logistics

151. To develop Hong Kong into an international smart logistics hub, the Government will launch the Future Innovative Logistics Acceleration Scheme this year to drive the transformation of the industry and enhance the interconnectivity of logistics data, with a view to increasing the competitiveness of the logistics industry.

Modern Logistics Cluster

152. The Hung Shui Kiu/Ha Tsuen New Development Area is connected with the Qianhai Co-operation Zone and will become the centre for modern services in the NM. The Government has reserved about 32 hectares of land for developing a modern logistics cluster and will invite expressions of interest from the industry for the development of the first site this year.

(To be continued.)

Source: AI-found images

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.)

Source: AI-found images