Explainer|Can Paul Chan’s budget help Hong Kong’s economy strike a purple patch?

Hong Kong Financial Secretary Paul Chan Mo-po will deliver his annual budget on Wednesday, unveiling measures to accelerate the city’s economic recovery after balancing the books, amid mounting expectations for more “sweeteners” in the blueprint. The 2026-27 budget also marks the government’s first major test in aligning the city with mainland China’s 15th five-year plan and unveiling long-term growth initiatives. The South China Morning Post examines how political and economic factors will shape the budget and what Hongkongers can expect from it. 1. What is the theme, and what are the debates? The finance chief revealed on Sunday that this year’s budget will feature a purple cover, symbolising Hong Kong’s strengthening economic momentum amid a volatile external environment. The budget comes against the backdrop of heightening geopolitical tensions, following US President Donald Trump’s announcement last week of a new 15 per cent global tariff. With an earlier-than-expected operating surplus in sight, the government is under pressure to strategically invest in long-term growth engines while navigating headwinds, and deliver more sweeteners, even as economists warned that public finances could not support large-scale relief measures. 2. What measures have been revealed so far? Sources told the SCMP that the finance chief would unveil a raft of measures to strengthen the city’s growing intellectual property (IP) economy, including investing tens of millions of dollars to establish a dedicated academy for nurturing professionals. Innovation will be a key theme, with the Hong Kong Technology and Innovation Support Centre (HKTISC) tasked to help local tech companies evaluate the quality of their innovations and assess the values of their patents. The authorities will also earmark HK$100-200 million (US$12.8-25.5 million) for a “Northern Metropolis urban-rural integration fund” to advance rural and cultural tourism projects, and hundreds of millions are to be spent on large-scale exhibitions ranging from superyachts to supercars to boost the “yacht economy” and exhibitions sector. 3. We are finally out of the red, but what are the concerns? After three years of huge deficits, Hong Kong is on track for an early operating surplus which could reach about HK$500 million, according to estimates by some accounting firms. While the capital account remains in the red, economists estimate the consolidated deficit will be much lower than the HK$67 billion projected for 2025-26, thanks to a boom in the city’s stock market. Some pundits describe the finances as “robust” while urging the city to wean itself off its heavy reliance on land sales for revenue. They also highlight future bond repayment pressures tied to expanded infrastructure bonds. Economists also warn that geopolitics could undermine the economy, urging the city to step up its efforts to help internationalise the yuan. 4. Which ‘sweeteners’ do parties agree on? With fiscal breathing room, most political groups are calling for expanded tax breaks in the budget. All major parties back higher child allowances, with some advocating a progressive tax allowance to boost the birth rate. The G19 bloc, formed by the Election Committee and functional constituency lawmakers, and the Business and Professionals Alliance for Hong Kong (BPA) have proposed raising the basic salaries tax allowance from HK$132,000 to HK$140,000 and HK$152,000 respectively. The Democratic Alliance for the Betterment and Progress of Hong Kong, the city’s biggest political party, and the pro-business Liberal Party are both lobbying for tax relief for families that hire foreign domestic workers. 5. What’s in it for me? Chan earlier acknowledged the growing burden on the middle class and pledged a comprehensive review of taxation and allowances, following calls for support from major parties. Low-income households are hoping for more relief measures, with concern groups and economists pressing for targeted measures for the unemployed, such as a one-off subsidy. The city’s unemployment rate edged up 0.1 percentage point to 3.9 per cent for the November to January period. Small and medium enterprises want better financing, loans and technological upgrades, according to a survey released this week. Some lawmakers have called for consumption vouchers to boost the “nighttime economy” and catering and retail sectors, though officials stress the need to spend public funds prudently. 6. How will Hong Kong align with the 15th five-year plan? While Hong Kong will devise its first five-year plan to align with the national one, Chan has hinted that the budget will include policies to help mainland innovation and technology enterprises “go global” and promote the clustering of key businesses in the city. The national blueprint prioritises technological self-reliance and “new quality productive forces”. Observers say the government should meet Beijing’s expectations by adopting a “reform mindset”, breaking from the “small government, big market” approach and tackling the city’s own critical bottlenecks first.