2026 Budget
When he sits down later this month to finalise the budget for the coming financial year, financial secretary Paul Chan Mo-po will have some positive news in his pocket to balance off against the many calls for additional expenditure. As some of those new demands will be expensive and compelling, he will need all the help he can get.
First, the good news. Hong Kong is almost certainly headed for a surplus in public finances. In his 2025 budget, Chan was forecasting a deficit on consolidated operating account of $67 billion, derived from a revenue/expenditure shortfall of $224.9 billion partially offset by net proceeds of bond sales ($95.9 b) and reclaiming the unspent balance of various ($62 b). In the first eight months of the financial year, the actual deficit on consolidated operating account was only $18.02 b. As the final four months are when the bulk of tax revenues come in, I think we could be looking at a surplus of several tens of billions of dollars on the operating account.
Part of the reason for the better-than-expected results will, I am sure, derive from higher stamp duty revenues boosted by Hong Kong’s stellar performance as a fund-raising centre, having reclaimed the world number one slot for money raised by way of IPOs. This will also have been a factor in the government’s recent announcement of an upgrade in forecast GDP growth, from a range of 2 – 3 per cent, to 3.2.
The two big calls for additional expenditure will be launching northern metropolis, and recovery from the Tai Po fire disaster.
The government is now moving ahead aggressively with implementation of the northern metropolis project. As this requires a much more activist approach to economic development than we have practised before, one consequence will be a greater call on public funds to provide basic infrastructure and even co-invest with the technology companies we are hoping to attract. Once we have helped establish the core of the project and generated some momentum, it should become self-sustaining. But in the early stages the administration will have to play a major role.
Late last month the government established the Hung Shui Kiu Industry Park Company Limited as a wholly owned private company to drive development. A site of 23 hectares will be granted to the company at zero premium. There will also be a capital injection, size to be announced in the budget, for construction, operating expenditure and co-investment in selected tenant companies.
As an indicator of the scale of anticipated government investment, in his previous budget speech Chan indicated that he would be looking to raise $860 billion in bond sales over the next five years. Obviously, it will be easier to raise such sums on reasonable terms now our accounts are on the verge of returning to the black.
As a general rule, financial secretaries do not like deficits or surpluses to be too large. The former have a negative effect on public and market confidence, the latter excite proposals from politicians – both within and outside the administration -- for greater expenditure. Depending how the numbers look when a final decision has to be made, I would not be surprised if the capital injection were a fairly hefty one.
The aftermath of the Tai Po fire could raise demands for public support in two respects, first the capital cost of a practical solution on rehousing, secondly restoring operating funding for a variety of worthy social purposes.
On the first point, I see the unnecessary deaths of 161 people as a major blow to public confidence and a blot on Hong Kong’s international reputation. To repair the damage quickly, simplest is best and the most practicable remedy is to proceed forthwith with demolition of Wang Fuk Court and its redevelopment in accordance with modern standards including necessary safety features. Those who lost their homes could then have a choice of moving back into the new property after a period in interim accommodation elsewhere, or an immediate move into an alternative HOS apartment in a different location. Either way public funds will be required.
The second problem is less obvious but no less real. All corporations and individuals in practice have a limited budget for discretionary expenditure on such matters as promotional or charitable purposes. In 2025 there were two calls on such funds, support for the national games, and emergency help for the Tai Po victims. The Jockey Club was the partner organisation for the games and committed $450 million. The MTRC and other local transport operators also gave support in cash or kind, as did a number of major corporations in the private sector (Henderson, Sino, Sun Hung Kai, Chow Tai Fuk etc). A firm total figure is not readily available but obviously was not small.
The spontaneous public outpouring of support for Tai Po has reached over four billion dollars. The combined effect of these two calls for donations has been to soak up much of the money that might otherwise have been available for smaller charities. Some of these are now reported to be struggling with fund raising as traditional supporters are tapped out. Some of the activities, if deemed worthy and urgent, may have to be rescued by an infusion of public funds.
One final comment on the budget. There are always good reasons to defer regular reviews of fees and charges for public services. There will always be complaints from the public or LegCo members which will be picked up by the media. But there is one very good reason to continue to apply the user pays principle: it maintains Hong Kong’s reputation for prudent management of public finances which is worth keeping. I therefore urge Chan to hold the line. After all a modest increase of 3 – 5 percent from time to time is a lot easier for people to stomach than a big jump.