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Growth forecast and supportive policies

In the 2025 budget speech, Financial Secretary (FS) Paul Chan projected the economy to grow 2.5-3.5% in 2026 and around 3.0% in 2027-2030.

Budget surplus

Hong Kong fiscal balance has returned to surplus after three consecutive years of fiscal deficits, with consolidated account projected to register a HKD2.9bn surplus, compared with original estimate of a HKD67bn deficit. The ratio of fiscal reserves to monthly public spending is staying at approximately 10 months.

Stamp duty, land premium and indirect tax

Stamp duty revenue estimate has revised to HKD99.5bn, exceeding the original HKD67.6bn, thanks to the active equity market trading and accelerated economic growth. The average daily turnover on stock market increased from HKD132bn in 2024 to HKD250bn in 2025, with projections indicating further growth to HKD299bn in 2026.

Land premium revenue remains a challenge, with its share of total revenue falling from 27% in FY17/18 to 2.5% in FY25/26. From Mar-Dec 2025, land premium revenue reached only HKD6.5bn, representing about 31% of the forecast. However, the revived property market paired up with lowered unsold inventory, land sale activities will likely improve moving forward. Against this backdrop, property stamp duty on residential property transactions valued above HKD100mn will be raised to 6.5% from the existing 4.25%.

Direct tax

Expansion in the number of taxpayers and corporations is expected to increase direct tax revenues. Profit and salary taxes account for 45-50% of government revenue. The number of foreign regional headquarters in Hong Kong rose by 7.1% YoY to 1,510 in 2025, driven by the return of talent and increased Chinese capital and outward direct investment. Even non-Chinese corporates, which had scaled back, saw a 5.5% rise in regional headquarters in 2025.

Capital expenditure

Northern Metropolis is the key initiative to strengthen connectivity with the Greater Bay Area in upcoming years. The government will transfer HKD150bn of Exchange Fund to the Capital Works Reserve Fund in the coming 2 years to support related infrastructure projects. The government will advance public-private partnerships to unlock land for industrial development, with HKD10bn each for Hetao Co-operation Zone Hong Kong Park, San Tin Technopole, and Hung Shui Kiu Industry Park to fund infrastructure, venture support, and initial operations. Government spending on capital expenditures as a percentage of GDP is projected to increase from 4.9% 2024-25 to 5.6% in 2026-27 as a result.

AI investment

Riding on the acceleration of global and China AI development, Hong Kong is allocating HKD10bn I&T Industry-Oriented Fund this year, alongside HKD100bn to accelerate government digital transformation and HKD50mn to expand AI training initiatives. The Hong Kong AI Research and Development Institute will commence operations in 2H25, supporting R&D and commercialization. Other key investments are set to on board, including quantum computing, new materials, and reindustrialization initiatives, particularly within the Northern Metropolis project.

Bond issuance

The government plans to raise HKD160–220bn in debt over the next five fiscal years. About half of the proceeds will be used to refinance short-term liabilities. The authorities also intend to increase long-end issuance to reduce rollover pressure, as long-term debt currently accounts for only 12% of total outstanding government bonds. Incremental borrowing will fund mentioned infrastructure capex.

Hong Kong’s low public debt-to-GDP ratio provides ample room for this increase. It is expected to rise from 14.4% to 19.9% over the medium term but remains well below international peers. The potential allocation of China’s foreign reserves into Hong Kong could help absorb the increased bond supply, thereby mitigating some upward pressure on government bond yields.

Recurrent expenditure

While infrastructure capital expenditure is essential for fostering growth, cost efficiency in other areas has become paramount in managing the deficit. Government’s recurrent expenditure will be cut by 2% in both 2026 and 2027, delivering savings of HKD7.8bn and HKD15.6bn respectively compared to 2025. A reduction of 10,000 positions has been implemented as part of cost control efforts. Pay freeze from last fiscal year is currently under review and has yet to amend.

Financial hub

The 15th Five-Year Plan calls for advancing RMB internationalization and capital account opening. Hong Kong will leverage its strengths to support this by expanding RMB business quotas, promoting easier regional currency trading, regularly issuing RMB bonds, developing offshore interest rate curves, and attracting high-quality issuers to boost cross-border RMB transactions. At the same time, Hong Kong will enhance market connectivity by launching sovereign bond futures, including REITs and RMB trading counters in Stock Connect, and continuously optimizing Bond Connect.

HKEx reclaimed the top global IPO market position in 2025 based on total funds raised, with USD37bn raised through IPOs—three times more than in 2024. The government continues to enhance Hong Kong’s securities ecosystem. Measures include revising listing rules for innovative and overseas issuers, streamlining the IPO process, implementing T+1 settlement, advancing board lot and uncertificated securities reforms, and exploring new avenues for secondary trading and regulatory enhancements.

For Corporate Treasury Centres (CTCs), the government will relax the eligibility criteria for stamp duty relief on intra-group asset transfers. Additional tax incentives for CTCs are expected to be announced later this year, further reinforcing Hong Kong’s position as a regional treasury hub. This supports the initiatives of attracting family offices to Hong Kong, which grew from 2,700 in 2023 to 3,300 unit in 2025.

Tourism and consumption

Visitor arrivals to Hong Kong rose 12% last year, reinforcing tourism’s recovery momentum. The government will allocate HKD1.66bn to the Hong Kong Tourism Board to step up promotion in high-potential markets, including Mainland cities beyond Guangdong as well as ASEAN and the Middle East, with a focus on attracting higher-spending overnight visitors. Efforts will intensify to expand meetings, incentives, conventions and exhibitions (MICE) events, deepen collaboration with the Greater Bay Area and other Mainland provinces, and roll out multi-destination itineraries with airlines to draw more long-haul travelers.

To support domestic consumption, tax reduction ceiling has been raised to HKD3,000 in FY26/27 from HKD1,500 in FY24/25, marking the first increase since FY18/19. Basic, child, and elderly care allowances have also been lifted by 10%, 8%, and 10%, respectively. Together with other relief measures, total tax-related stimulus amounts to HKD21bn, equivalent to around 5.5% of retail sales.

Conclusion

Hong Kong economy has broadly recovered in 2025. A proactive stimulus plan with improving fiscal health will help with the city’s long-term and sustained growth. Sustaining a surplus is a key focus, with enhancing revenue and containing government expenditure growth as top priorities to facilitate the technology development and Northern Metropolis project.

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