Expanding the Tax Base through Emerging Industries: a New Harvest Period on the Way
Expanding the Tax Base through Emerging Industries: a New Harvest Period on the Way
The original language is Chinese, and the English version is for reference only. In case of any discrepancy between this version and the original content, the Chinese version shall prevail.
The Financial Secretary will announce a new Budget next month, and public attention towards the HKSAR Government’s fiscal position has been growing day by day.
According to the Government’s latest figures, the first eight months of the current financial year recorded a consolidated deficit of about HKD18 billion. Although the figure remains in deficit, under Hong Kong’s tax system, major sources of revenue such as income tax and profits tax are normally booked in the latter part of the fiscal year (from January to March). Together with the recent momentum of economic recovery, Hong Kong’s fiscal condition for 2025–26 is likely to show significant improvement, with some market commentators even expecting the return of a fiscal surplus.
Traditional Pillars Stabilising and Providing a Fiscal Buffer
The short-term improvement in public finances has benefited from the simultaneous recovery of the real economy and the financial markets. Hong Kong’s GDP growth forecast for 2025 has been revised upward to 3.2%, reflecting stronger-than-expected economic momentum. As the saying goes, “When the economy prospers, the treasury prospers.” Strong GDP growth means business activity has become more vibrant, directly driving up corporate profits and private consumption, which will in turn translate into higher profits tax and stamp duty revenues.
In the financial market, the Hang Seng Index rose nearly 28% over the year, with trading activity turning exceptionally active. The average daily turnover surged by 90% year-on-year to HKD 249.8 billion, driving a sharp rebound in stamp duty revenue. At the same time, Hong Kong regained its position as the world’s top IPO fundraising centre, with total IPO proceeds exceeding HKD 280 billion in 2025. Among them, companies from the new economy sectors accounted for more than two-thirds, reflecting that Hong Kong’s financial strength remains solid.
The property market has also shown steady improvement. The number of transactions surged by nearly 20% over the year to more than 80,000 — the highest since 2022 — while private residential prices have stabilised at the bottom, registering a mild increase of about 3%. The recovery of these two traditional engines not only directly contributes to stamp duty and land revenue but also generates spillover effects, spurring related industries such as law and accounting, which in turn translate into additional profits tax contributions.
From “Attracting Capital” to “Settling Enterprises” Requires Fiscal Input
However, relying solely on traditional pillars is not a long-term solution. Historical experience shows that excessive dependence on highly volatile stock and property markets makes the revenue structure fragile. In recent years, the Government has strategically developed new industries and markets, including the digital economy led by artificial intelligence (AI) and Web3, and the advancement of biotechnology and green technology.
At the same time, with the Hong Kong Exchanges and Clearing Limited establishing a presence in Riyadh, Saudi Arabia, and the listing of Middle Eastern ETFs in Hong Kong, capital flows from ASEAN and the Middle East are being realised at a faster pace. More importantly, this kind of connection is shifting from “financial connectivity” to “industrial cultivation.” If more high value-added enterprises from these regions establish operational entities in Hong Kong in the future, it will not only directly boost local employment but also help expand more stable and growth-oriented salaries tax revenues at the source. In the long term, as businesses anchor and increase their profits, this will also transform into sustained profits tax contributions.
This process will not only inject new vitality into the local capital market but also broaden the tax base, reducing the Government’s overreliance on volatile revenue sources and achieving a more stable and sustainable fiscal structure. However, we must recognise that moving from “attracting investment” to “anchoring enterprises”, and from “setting up a presence” to “building a value chain”, requires policy patience and, more importantly, fiscal investment. This is also what the community cares about most — the “investment return” of the Government’s efforts in developing new industries and markets. On how to strike the right balance between revenue generation and expenditure control, Our Hong Kong Foundation will release its latest Budget Policy Research on 5 February, which is expected to provide society with a more focused discussion.
Debt Risks are Manageable; Investments Must Be Clearly Distinguished from Consumption
In the process of developing emerging industries and building strategic growth hubs such as the Northern Metropolis and San Tin Technopole, an increase in government bond issuance will be inevitable. From an international perspective, Hong Kong’s level of government debt remains manageable. The medium-term forecast in last year’s Budget also indicated that even with continuous bond issuance in the next few years, the debt-to-GDP ratio will remain at around 12% to 16.5%.
Hong Kong’s strong credit ratings provide a low-cost channel for the Government to raise funds. However, it must also be recognised that, as a small and open economy operating under the Linked Exchange Rate System, Hong Kong lacks an independent monetary policy and does not possess natural resources as a buffer. This means Hong Kong must manage its debt more prudently than other economies.
Therefore, the focus of public discussion should not rest solely on the level of borrowing, but rather on the use of proceeds. The Government must make clear a fundamental principle: debt issuance should be directed towards infrastructure projects that drive future growth, and the “capital account” must be kept separate from the “recurrent account.” Revenues under the capital account (including proceeds from bond issuance) must not be used to cover recurrent account expenditures. Only by locking borrowing into long-term, return-generating investments — such as infrastructure, research and development, industrial support, and talent cultivation — can Hong Kong’s debt be transformed into a genuine engine for economic growth.
Looking to the future, as the ecosystem for emerging industries becomes increasingly mature, and the traditional financial and property engines continue their recovery, Hong Kong’s sources of fiscal revenue will become more diversified. As long as we maintain composure during the transformation period, uphold fiscal discipline, and make good use of borrowing capacity to invest in the future, Hong Kong will surely usher in a new harvest period of economic development.
The original language is Chinese, and the English version is for reference only. In case of any discrepancy between this version and the original content, the Chinese version shall prevail.
The Financial Secretary will announce a new Budget next month, and public attention towards the HKSAR Government’s fiscal position has been growing day by day.
According to the Government’s latest figures, the first eight months of the current financial year recorded a consolidated deficit of about HKD18 billion. Although the figure remains in deficit, under Hong Kong’s tax system, major sources of revenue such as income tax and profits tax are normally booked in the latter part of the fiscal year (from January to March). Together with the recent momentum of economic recovery, Hong Kong’s fiscal condition for 2025–26 is likely to show significant improvement, with some market commentators even expecting the return of a fiscal surplus.
Traditional Pillars Stabilising and Providing a Fiscal Buffer
The short-term improvement in public finances has benefited from the simultaneous recovery of the real economy and the financial markets. Hong Kong’s GDP growth forecast for 2025 has been revised upward to 3.2%, reflecting stronger-than-expected economic momentum. As the saying goes, “When the economy prospers, the treasury prospers.” Strong GDP growth means business activity has become more vibrant, directly driving up corporate profits and private consumption, which will in turn translate into higher profits tax and stamp duty revenues.
In the financial market, the Hang Seng Index rose nearly 28% over the year, with trading activity turning exceptionally active. The average daily turnover surged by 90% year-on-year to HKD 249.8 billion, driving a sharp rebound in stamp duty revenue. At the same time, Hong Kong regained its position as the world’s top IPO fundraising centre, with total IPO proceeds exceeding HKD 280 billion in 2025. Among them, companies from the new economy sectors accounted for more than two-thirds, reflecting that Hong Kong’s financial strength remains solid.
The property market has also shown steady improvement. The number of transactions surged by nearly 20% over the year to more than 80,000 — the highest since 2022 — while private residential prices have stabilised at the bottom, registering a mild increase of about 3%. The recovery of these two traditional engines not only directly contributes to stamp duty and land revenue but also generates spillover effects, spurring related industries such as law and accounting, which in turn translate into additional profits tax contributions.
From “Attracting Capital” to “Settling Enterprises” Requires Fiscal Input
However, relying solely on traditional pillars is not a long-term solution. Historical experience shows that excessive dependence on highly volatile stock and property markets makes the revenue structure fragile. In recent years, the Government has strategically developed new industries and markets, including the digital economy led by artificial intelligence (AI) and Web3, and the advancement of biotechnology and green technology.
At the same time, with the Hong Kong Exchanges and Clearing Limited establishing a presence in Riyadh, Saudi Arabia, and the listing of Middle Eastern ETFs in Hong Kong, capital flows from ASEAN and the Middle East are being realised at a faster pace. More importantly, this kind of connection is shifting from “financial connectivity” to “industrial cultivation.” If more high value-added enterprises from these regions establish operational entities in Hong Kong in the future, it will not only directly boost local employment but also help expand more stable and growth-oriented salaries tax revenues at the source. In the long term, as businesses anchor and increase their profits, this will also transform into sustained profits tax contributions.
This process will not only inject new vitality into the local capital market but also broaden the tax base, reducing the Government’s overreliance on volatile revenue sources and achieving a more stable and sustainable fiscal structure. However, we must recognise that moving from “attracting investment” to “anchoring enterprises”, and from “setting up a presence” to “building a value chain”, requires policy patience and, more importantly, fiscal investment. This is also what the community cares about most — the “investment return” of the Government’s efforts in developing new industries and markets. On how to strike the right balance between revenue generation and expenditure control, Our Hong Kong Foundation will release its latest Budget Policy Research on 5 February, which is expected to provide society with a more focused discussion.
Debt Risks are Manageable; Investments Must Be Clearly Distinguished from Consumption
In the process of developing emerging industries and building strategic growth hubs such as the Northern Metropolis and San Tin Technopole, an increase in government bond issuance will be inevitable. From an international perspective, Hong Kong’s level of government debt remains manageable. The medium-term forecast in last year’s Budget also indicated that even with continuous bond issuance in the next few years, the debt-to-GDP ratio will remain at around 12% to 16.5%.
Hong Kong’s strong credit ratings provide a low-cost channel for the Government to raise funds. However, it must also be recognised that, as a small and open economy operating under the Linked Exchange Rate System, Hong Kong lacks an independent monetary policy and does not possess natural resources as a buffer. This means Hong Kong must manage its debt more prudently than other economies.
Therefore, the focus of public discussion should not rest solely on the level of borrowing, but rather on the use of proceeds. The Government must make clear a fundamental principle: debt issuance should be directed towards infrastructure projects that drive future growth, and the “capital account” must be kept separate from the “recurrent account.” Revenues under the capital account (including proceeds from bond issuance) must not be used to cover recurrent account expenditures. Only by locking borrowing into long-term, return-generating investments — such as infrastructure, research and development, industrial support, and talent cultivation — can Hong Kong’s debt be transformed into a genuine engine for economic growth.
Looking to the future, as the ecosystem for emerging industries becomes increasingly mature, and the traditional financial and property engines continue their recovery, Hong Kong’s sources of fiscal revenue will become more diversified. As long as we maintain composure during the transformation period, uphold fiscal discipline, and make good use of borrowing capacity to invest in the future, Hong Kong will surely usher in a new harvest period of economic development.
