Introduction

Hong Kong is currently grappling with its most severe fiscal deficit in history, a situation exacerbated by ongoing economic weakness. The city's real GDP for 2023 remains below pre-2018 levels, with per capita GDP still trailing behind that of 2017. This presents a daunting challenge for the government as officials attempt to balance the budget. In contrast, during the aftermath of the 1998 financial crisis, Hong Kong's economy rebounded, and per capita GDP surpassed pre-recession figures by 2000. To navigate today's deficit, urgent economic stimulus is needed alongside community solidarity to regain fiscal health.

Impact of Housing Prices on Government Revenue

Research co-authored by Gary Wong and I, published in Asian Education and Development Studies, revealed that a 1% increase in housing prices could lead to a 0.6228% hike in government revenue. However, with persistent weakness in housing prices, land-based revenues have plummeted, directly contributing to the alarming deficit. The government’s initiatives to attract talent and technology firms are promising but maintaining a low-tax regime will not be feasible in a stagnant housing market.

Historical Context of Housing Policy

Historically, Hong Kong's housing market relied significantly on tenants in public rental housing (PRH), especially prior to 1997. Changes in policy, such as reducing benefits for "well-off households" since 1987, enabled many of these tenants to save enough to transition into ownership. Unfortunately, the current approach towards these high-income tenants—who pay double rent instead of vacating—is detrimental to both the housing market and government revenue.

Reforms in Housing Policy

To stimulate the private market, it may be wise to restrict affluent tenants from purchasing subsidized Home Ownership Scheme (HOS) flats at discounted rates. By reforming these policies, the government could save money and reduce the waitlist for PRH applicants. Implementing stricter eligibility criteria for tenancies will allow a more equitable distribution of housing resources.

Legalizing Unauthorized Structures

Another innovative strategy involves addressing unauthorized structures through a "fine, legalize, and tax" framework. Currently, proposals to amend the Buildings Ordinance aim to penalize illegal structures severely, but properties that can be certified safe might be legalized instead. This method would not only increase government revenue through property taxes but also benefit property owners with peace of mind.

Promoting Self-Reliance in Housing

Promoting a spirit of self-reliance is crucial for Hong Kong's recovery. Instead of continuing the practice of offering deep discounts to low-income buyers through balloting, the government should focus on building basic HOS housing units accessible to all. A renewed focus could see these units priced around eight times the median annual income for active households—approximately HK$3.68 million—ensuring they remain affordable yet sustainable.

Utilizing Government Land Efficiently

Legalizing the ownership of government land currently occupied illegally could also raise revenue. The Development Bureau should assess alternative uses for such land and, if deemed unviable for development, legalize ownership while implementing proper tax structures.

Evolving Financial Policies

The financial policy landscape needs to evolve. Removing standard tax rates that disproportionately shield high-income individuals is essential. The current system’s rates—15% on the first HK$5 million of net income and 16% above that—allow affluent taxpayers an unfair advantage. Hong Kong’s top marginal tax rate of 17% pales next to Singapore's 24%. Increasing this rate could generate substantial additional revenue.

Land Strategy for Financial Returns

Finally, reserving "pricey land" for private development over public housing projects could yield greater financial returns via profit taxes and land premiums. This strategy not only aims to bolster government coffers but also encourages PRH and HOS tenants to upgrade to better private accommodations.

Conclusion

In conclusion, if Hong Kong is serious about reclaiming its fiscal health, these multifaceted strategies—rooted in community engagement, reformed tax policies, and pragmatic housing solutions—must be urgently implemented. The city's financial future hinges on innovative thinking and timely action. Will these strategies be enough to turn the tide? Only time will tell!