Hong Kong will offer tax breaks, handouts and subsidies to small businesses and residents, to mitigate the impact of a new wave of social restrictions to curb Covid-19 infections, the country’s top finance official said in his budget speech.
The measures were announced as hundreds of bars, restaurants and small retailers warned they were months away from closure, following the imposition of the strictest restrictions since the pandemic began in 2020.
“Our economy and people’s livelihoods have been under immense pressure in recent months,” Financial Secretary Paul Chan told legislators via videoconference on Wednesday.
“Economic performance in the first quarter is not optimistic,” he said.
Chan said “countercyclical measures” in the budget to support the economy totalled more than HK$170 billion ($22 billion), with anti-epidemic measures alone worth more than HK$54 billion.
The global financial hub has doubled down on its “dynamic zero Covid” strategy, which aims to eradicate all outbreaks, following mainland China’s lead even as the rest of the world adjusts towards “living with the virus”.
Economic Contraction
Given the city is facing thousands of infections a day and the numbers are growing, some analysts predict at least one or two quarters of economic contraction after recovering last year from the city’s most prolonged recession in 2019-2020.
Bars, gyms, beauty parlours and 12 other types of venues are closed, while restaurants cannot operate beyond 6pm.
Apart from grocery stores, most shops are deserted as residents are back working from home. Train and ferry services have been cut back as working from home and school closures have thinned commuter rush hours.
The border is virtually shut and the finance sector has complained that this has caused an exodus of talent and made operating a regional hub out of Hong Kong difficult.
The new measures announced on Wednesday include a 100% reduction in salaries tax, capped at HK$10,000, handouts of HK$10,000 consumption vouchers, financial aid for the unemployed, and subsidies for directly impacted businesses.
Hong Kong’s economy is expected to grow 2.0% to 3.5% this year after expanding 6.4% in 2021, Chan said.
- Reuters with additional editing by Jim Pollard
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