Hong Kong urged to spend ‘smarter’ after IMF backs city’s saving efforts Hong Kong lawmakers and experts have called for “smarter” spending after the International Monetary Fund (IMF) recognised the government’s gradual financial consolidation path was appropriate for sustaining an economic recovery. Experts also expressed scepticism on Saturday that the government would heed the UN body’s advice on broadening the tax base to sustainably pay for the rising expense of the city’s rapidly ageing society and invest in initiatives to boost economic growth. The IMF said Hong Kong’s economy was “recovering gradually after a protracted period of setbacks” and projected gross domestic product (GDP) growth of 2.7 per cent for both 2024 and 2025. But the organisation cautioned that the pickup in domestic demand was likely to be offset by weakening external demand, including from mainland China. “A sharper-than-expected slowdown in mainland China, due to the escalation of trade tensions or a deeper and more protracted adjustment in the property market, would further weaken confidence,” the IMF said. “Slowing growth in major economies will weaken external demand for Hong Kong’s services and goods.” Acknowledging ongoing weak demand domestically, it recognised the government’s gradual medium-term financial consolidation path was appropriate. The IMF also noted that public coffers would be at an “ample” level, at about 21 per cent of the city’s GDP, at the end of the current financial year. The IMF advised that steps were needed to boost tax revenue to tackle mounting spending pressures related to the city’s ageing population and to serve as a sustainable foundation for spending on critical structural initiatives to lift potential growth. “Such steps could include increasing the progressivity of personal income taxes with higher rates for top earners. Increases in excise taxes and the introduction of value-added tax and taxes on capital gains and dividends could provide additional revenues,” it said. The IMF also praised the government’s efforts to create a digital finance ecosystem and a green finance landscape that would safeguard the city’s international status. Financial Secretary Paul Chan Mo-po said the government would study the IMF’s recommendations carefully and welcomed its recognition of the city’s gradual approach towards financial consolidation. “On controlling expenditure, we will manage the growth of recurrent expenditures to gradually narrow the fiscal gap. On seeking new revenue sources, we will maintain Hong Kong’s competitive advantage of a simple and low tax system,” he said on Friday. Chan earlier forecast the current financial year would see a deficit of just under HK$100 billion (US$12.8 billion), up from the initial forecast of HK$48.1 billion made in last February’s budget. Lawmaker Wendy Hong Wen said Hong Kong faced the rising risk of a “structural deficit” given the volatility of revenue from land sales and real estate transactions. Ryan Ip Man-ki, vice-president and co-head of research at think tank Our Hong Kong Foundation, said the city’s rapidly ageing society would continue to drive expenditure in terms of welfare and healthcare. Ip warned that land revenues in the future could remain subdued even if the property market recovered, given that large areas of the Northern Metropolis aimed to promote the expansion of new industries. Professor Heiwai Tang, director of the Asia Global Institute at the University of Hong Kong, agreed the city should seriously consider new taxes. He said there was a “mental trap” among government economists that higher taxes would lower productivity or competitiveness in the long run. Hong Kong’s last attempt to introduce GST in 2006 faced strong resistance and was abandoned. The IMF report was prepared following a visit to Hong Kong by its staff in November. The body said that while the city’s drive to attract skilled labour had been “helpful”, authorities should continuously monitor such schemes to ensure they meet their objectives. It added that the Hong Kong dollar’s 41-year peg to the US dollar “remains the appropriate arrangement for Hong Kong” given its highly open economy and large financial services industry. https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3294350/hong-kong-urged-make-smarter-spending-after-imf-backs-saving-efforts (ICE HONG KONG)

Fonte notizia: South China Morning Post