Hong Kong's Fiscal Policy and Market Implications: Budget Timing and Investor Strategy in a Post-Pandemic Recovery

Hong Kong's fiscal policy in the post-pandemic era has been a balancing act between stimulating economic recovery and maintaining long-term fiscal sustainability. The 2023-24 and 2025-26 budgets reflect this duality, with measures aimed at supporting businesses, attracting global capital, and addressing structural vulnerabilities. For investors, understanding these policy shifts-and their sector-specific impacts-is critical to navigating opportunities and risks in a market still recalibrating to global and regional dynamics.

Fiscal Prudence and Stimulus: The 2023-24 Budget

The 2023-24 budget prioritized fiscal restraint, with total government expenditure projected to decline by 6% to HK$761.0 billion, or 25% of nominal GDP, as the government sought to manage post-pandemic fiscal pressures. Tax rates on profits and salaries were left unchanged to preserve Hong Kong's competitive edge, while a HK$2.4 billion annual special football betting duty on the Hong Kong Jockey Club (HKJC) was introduced as a short-term revenue measure. A progressive property rating system, set to take effect in 2024-25, was also announced, expected to generate HK$760 million annually.

To cushion pandemic-affected businesses and individuals, the budget included a one-off tax reduction for the 2022-23 assessment year, capping tax relief at HK$6,000 per case. This measure was projected to benefit 134,000 businesses and 1.9 million taxpayers, though it came at a revenue cost of HK$720 million for businesses and HK$8.5 billion for individuals. These policies underscored a strategy of targeted support while maintaining fiscal discipline.

Strategic Stimulus and Global Alignment: The 2025-26 Budget

The 2025-26 budget, announced on February 26, 2025, marked a shift toward growth-oriented measures. A one-time 100% tax reduction on salaries and profits tax for the 2024/25 assessment year, capped at HK$1,500 per individual or business, was introduced to provide immediate relief. Property tax concessions and stamp duty adjustments further stimulated the real estate market, with the eligibility threshold for a HK$100 stamp duty raised from HK$3 million to HK$4 million.

Long-term investments in innovation and infrastructure, particularly the Northern Metropolis project, were highlighted as engines of economic diversification. The government also aligned with the OECD's global minimum tax framework, imposing a 15% rate on multinational enterprises with consolidated revenues exceeding EUR 750 million. These measures aimed to position Hong Kong as a compliant yet competitive hub for global capital.

Investor Strategies and Sector-Specific Responses

Hong Kong's fiscal policies have elicited varied investor responses, particularly in SMEs, real estate, and family offices. A 2026 business sentiment survey revealed that 63% of participants anticipated modest economic growth, driven by the city's tax regime, capital markets, and mainland China's economic activity. However, challenges such as high living costs and global economic slowdowns prompted many firms to restructure or pivot toward domestic and mainland markets.

SMEs and Regulatory Flexibility

The 2025-26 budget's tax rebates and streamlined regulatory processes for SMEs have been pivotal. By reducing compliance burdens and offering targeted tax concessions, the government has incentivized entrepreneurship and innovation. For instance, legislative amendments exempting qualifying family-owned investment holding vehicles from profits tax have attracted single family offices, with Hong Kong surpassing its 2022 target of 200 family offices to reach 2,700 by 2025.

Real Estate and Stamp Duty Reforms

The real estate sector responded dynamically to tax reforms. The 2023 withdrawal policy, which reduced stamp duty from 30% to a minimum of HK$100, spurred a 17.1% year-on-year increase in property sales by 2024, with mainland buyers accounting for 24% of transactions. Areas like Kai Tak New District became focal points of investment, driven by infrastructure development and green initiatives. JLL forecasts a 0–5% rebound in Central's office rents and a 5% rise in residential prices in 2026, reflecting sustained demand.

Family Offices and ESG Investing

Hong Kong's tax reforms, including the Family-Owned Investment Holding Vehicle (FIHV) framework, have made it a magnet for global family offices. The city's territorial tax system, absence of capital gains tax, and proximity to the Greater Bay Area have positioned it as a preferred hub over rivals like Singapore. Additionally, 90% of global family offices now integrate ESG strategies, aligning with Hong Kong's regulatory push for transparency in sustainability reporting.

Risks and Fiscal Sustainability

Despite these gains, structural risks persist. Hong Kong's fiscal reserves fell by 37.4% from HK$1.2 trillion in 2019 to HK$733.2 billion in 2024, though they remain robust at 30% of GDP. Land revenue, which accounts for 20% of total fiscal income, remains volatile, with 60% of revenue fluctuations tied to property market cycles. The government's reliance on stamp duties and property taxes also limits fiscal flexibility, particularly as private consumption declined by 0.6% in 2024.

Conclusion: Navigating Opportunities and Challenges

Hong Kong's fiscal policy from 2023-26 has laid the groundwork for a resilient post-pandemic recovery, balancing stimulus with long-term sustainability. For investors, the key lies in capitalizing on sector-specific opportunities-such as SME growth, real estate revitalization, and ESG-aligned family office investments-while hedging against risks like fiscal volatility and external economic shocks. As the city eyes a return to a balanced budget by 2027-28, strategic allocations in innovation, infrastructure, and sustainable finance will likely define the next phase of its economic evolution.