Hong Kong plans $15 billion spending to support its economy amid coronavirus outbreak

The Hong Kong government has announced 120 billion Hong Kong dollars ($15.4 billion) well worth of measures to support its economy, which includes been dragged down by pro-democracy protests and the new coronavirus outbreak.

That planned spending would cause “an all-time high” fiscal deficit of 139.1 billion Hong Kong dollars, or about 4.8% of gross domestic product, Hong Kong’s Financial Secretary Paul Chan said in his budget speech on Wednesday.

“Since January 2020, Hong Kong has come under the threat posed by the novel coronavirus outbreak, which further dealt a blow to the economy. We must take decisive options to tackle the problem,” he said, corresponding to an official translation of his Cantonese speech.

Chan outlined measures to help businesses, employees and households weather additional economical challenges posed by the virus outbreak. They include:

Low-interest loans for small- and medium-sized enterprises, with government guarantee
A decrease in income tax by 100%, subject to a roof to $20,000
Cash payout of 10,000 Hong Kong dollars to permanent residents years 18 and above
However the financial secretary warned that “one-off pain relief measures” may have to be “progressively reduced” in the coming years as the government’s expenditure keeps growing much bigger.

The planned deficit for the coming financial year starting in April is a lot larger than the $37.8 billion fiscal shortfall expected in the current financial year – the Hong Kong government’s first deficit in 15 years.

“The deficits are mainly caused by the fact that government income cannot match drastic increases in government expenditure, especially recurrent expenditure,” said the financial secretary.

He explained that Hong Kong’s fiscal reserves of about 1 trillion Hong Kong dollars have allowed the federal government “to spin out special options amid the prevailing monetary downturn, such as paying out cash.” But in the longer term, the federal government must grow the economy and find new resources of revenue, he added.

Hong Kong in recession
The Hong Kong economy entered its first recession in a decade when it posted a 2.8% year-on-year decline in third-quarter gross domestic product. In the fourth 1 / 4, the city’s GDP fell by 2.9%.

For your of 2019, Hong Kong’s economy contracted by 1.2% – the first gross annual GDP decline since 2009, said Chan.

Consumer and tourism spending have been weak locations in the Hong Kong economy. Some analysts said options from the budget – particularly the 10,000 Hong Kong dollars cash payout – might not help the retail and tourism sectors much.

Janet Pau, director with the Economist Corporate Network, said the money handouts could spur additional spending by Hong Kong residents. But that may not replace the loss of consumption scheduled to a decrease in mainland Chinese tourist arrivals, she told CNBC’s “Streets Signs Asia.”

“Mainland tourist arrivals have been decimated by calendar months and months of social unrest, and we will have to see if there’s going to be always a pick up following this kind of twin crises,” said Pau, referring to the twin threats that the Hong Kong is facing: anti-government protests and the coronavirus outbreak.

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