Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor’s first policy address outlined a clear, if unsurprising, vision for the city’s economic future. The economic keystone of Lam’s policy address was, as expected, housing policy. Meeting housing needs was characterised as the “top priority” for the government. Beyond the dominant theme of housing, Lam’s economic proposals also included schemes to bolster the competitiveness of Hong Kong’s flagging innovation and technology sector, and a reduction of the profits tax for small- and medium-sized enterprises.
Affordable housing has long been an issue for Hongkongers. The city has the world’s most expensive housing market, both in absolute terms and in relation to the median income of its residents. As a relatively small place, insufficient land supply is often cited as the cause of Hong Kong’s high property prices. With its reputation as an intensely dense, urban city, it is also often forgotten that country parks make up forty per cent of Hong Kong’s land area – six times as much as residential land.
Although these explanations are intuitively appealing, the government in Hong Kong has ownership rights over all land, and holds large parcels of it – even beyond the country parks – that could be used for residential development. Some point to the political incentive to pander to developers and middle-class property owners, both of whom benefit tremendously from sustained high prices, as being behind the government’s reluctance to increase the land supply – a measure that would ultimately depress prices.
That said, the government has committed to releasing more land for development, and it does seem like this commitment is strengthening under Lam’s leadership. Whereas previous policy addresses have seen a greater emphasis on measures like the imposition of stamp duties, Lam’s speech was markedly more focused on supply issues. Although speculative purchases from the mainland are responsible for inflated prices – particularly in the luxury market – such speculation is no excuse for a lack of affordable public housing.
One of the new measures put forth by Lam in her election manifesto, and further explained in the policy speech, is a Starter Homes Scheme to boost home ownership among the middle class – those who do not qualify for public housing, but cannot afford to fulfil the widely held aspiration of possessing property.
She also envisioned a steady transition from the Public Rental Housing programme to the Green Form Subsidised Home Ownership Scheme, which she described as having “merits and no shortcomings”. The programme calls for the subsidised sale of some flats in new developments, and may also involve the government buying flats and selling them below market to individuals and families. In essence, this signals a transition in the government’s priority from simply providing a place to live, to ensuring that public housing tenants can ultimately own their home.
The fiscal maths behind Lam’s varied housing initiatives will only be clear when Financial Secretary Paul Chan Mo-po presents his annual budget, but going by the government’s track record, fiscal prudence can be taken as a given. In stark contrast with most developed governments, Hong Kong’s runs a consistent and sizeable surplus. Struggling lower-income residents have long hoped for more generosity from the treasury; perhaps Lam’s tenure will see some of those hopes come to fruition.
Beyond housing, the Chief Executive also outlined renewed government support for Hong Kong’s innovation and technology sectors. Hong Kong lags behind regional rivals in generating technology entrepreneurship and cutting-edge research – something she alluded to in the policy address, in which she speaks of Hong Kong “catching up in the I&T [innovation and technology] race”. This year, the city slipped to a historic low of 16th in the Global Innovation Index, well behind Asian leader Singapore’s seventh place.
Critics have noted in the past that having the government take the “easy” approach to the technology sector, through tax breaks and the development of infrastructure like the Hong Kong Science Park, does not generate convincing long-term results. Education and R&D (Research and Development) are where Hong Kong has historically been weakest.
Lam’s policy address tackles these concerns, presenting the goal of doubling R&D spending as a proportion of GDP. This includes billions in university research grants, as well as a fund to foster talent in the technology sector and “encourage our young people to engage in research and product development”. She also introduced a plan to create an interdepartmental Steering Committee to examine the city’s potential for growth in various areas of innovation and technology.
In her final substantiated economic policy revelation, Lam announced that profits tax would be halved to 8.25 per cent for the first HK$2 million in profits. The measure, which will undoubtedly be popular among the politically strong business constituency, is the kind of business-friendly policy that Hong Kong is famous for. That said, the marginal benefit of the policy may be limited on the economic front: the profits tax was low to begin with, and the policy intrinsically benefits profitable small enterprises, as opposed to those that are struggling to stay afloat. However, with the government’s secure financial position, the sweetener to small-scale businesses is perhaps not inappropriate.
On the economic front, the policy address struck an optimistic tone and indicated that Lam intends for a change in tack from her predecessor’s policies. However, critics have pointed out that there were scant details on some policies, such as the much-touted Starter Homes plans, and that more may need to be done to ensure the city’s long-term economic competitiveness. It is to be seen whether Lam’s government can follow through on her economic ambitions, but cautious optimism may be warranted.