In a strategic shift to address a growing fiscal deficit, Hong Kong plans to curtail its civil service workforce and increase investments in artificial intelligence, as announced by authorities on Wednesday. During a budget presentation, Finance Secretary Paul Chan revealed that the government aims to execute a “cumulative reduction” in recurrent expenditure by 7% from now until the fiscal year 2027-2028. This comes as Hong Kong grapples with a deficit that has escalated to 87.2 billion Hong Kong dollars ($11.2 billion) for the 2024-2025 financial period, marking the third consecutive year of financial shortfalls.
Chan outlined that by April 2027, the government intends to slash 10,000 civil servant positions, constituting a roughly 2% cut to the civil service in each of the upcoming two years. In addition, there will be a salary freeze for civil servants this year. The government also plans to issue bonds valued at up to 195 billion Hong Kong dollars ($25 billion) over the next five years to fund critical infrastructure projects, with a significant portion allocated toward refinancing short-term debt.
To augment its revenue streams, Hong Kong will increase the airport departure tax from 120 Hong Kong dollars ($15.50) to 200 Hong Kong dollars ($25.70) in the third quarter of this year, a 67% jump. Simultaneously, the region is aiming to broaden its artificial intelligence capabilities, aspiring to transform into a global hub for AI industry collaboration and exchange, leveraging the city’s global outlook.
An allocation of 1 billion Hong Kong dollars has been designated for establishing an AI research and development institute. Additionally, a substantial innovation and technology fund of 10 billion Hong Kong dollars ($1.29 billion) will be set up to support industries deemed of strategic future importance. The city’s financial struggles are further compounded by a flagging property market, with home values plummeting about 30% over the past three years.
Moreover, the ongoing economic flux and geopolitical volatility, particularly deteriorating U.S.-China relations, continue to weigh on Hong Kong’s economic prospects. The once-significant contribution of land premiums from developers to government revenue has dwindled, with these now comprising a little over 5% of annual income, down from about 20% historically. Paul Chan noted that the fiscal reserves are projected to decrease by 12% from 734.5 billion Hong Kong dollars ($94.5 billion) to approximately 647.3 billion Hong Kong dollars ($83.3 billion) by the end of March, with expectations of a further 10% decline in 2025-2026.
