Legislative Council "Research Brief": It is expected that Hong Kong's public expenditure for this fiscal year will increase to HK$904.7 billion.

On April 2nd, the Legislative Council Secretariat issued a Research Brief on the "2026-2027 Financial Budget", discussing the recent financial situation of the government and the strengthened version of the financial integration plan that has been implemented, as well as analyzing the fiscal space for expanding debt. It pointed out that total public expenditure in Hong Kong is expected to increase by 5.4% to 844.2 billion Hong Kong dollars, and is further projected to rise by 7.2% to 904.7 billion Hong Kong dollars in the current fiscal year. With an aging population, healthcare and social welfare continue to be the two largest expenditure categories. Benefiting from strong revenue from the stock stamp duty and debt issuance, government total revenue for the 2025-2026 fiscal year increased significantly by 21.9% to 688.8 billion Hong Kong dollars, resulting in a surplus of 2.9 billion Hong Kong dollars in the Comprehensive Account, marking the first return to surplus after three consecutive years of deficits. Despite the surplus occurring three years earlier than estimated by the government, the basic deficit still amounts to 100.4 billion Hong Kong dollars when excluding net debt funding, equivalent to 3% of Hong Kong's GDP. These figures are still lower than the average level of 4.6% tracked by the International Monetary Fund for 37 advanced economies. Infrastructure (infrastructure) has replaced education as the third largest expenditure category. Over the past five years, infrastructure spending in Hong Kong has surged by over 40%. It is estimated that with the commencement of various projects in the Northern Metropolitan Area (North Metro), annual basic engineering expenditure will be around 120 billion Hong Kong dollars for the next five years. In the financial integration plan for the 2026-2027 fiscal year, the Financial Secretary proposed to transfer 150 billion Hong Kong dollars from investment income of the Exchange Fund to support projects in the North Metro and other infrastructure projects, marking the first transfer in 42 years. Furthermore, the Financial Secretary also proposed to increase the debt ceiling from 700 billion Hong Kong dollars to 900 billion Hong Kong dollars and increase the proportion of long-term bonds. The Research Brief mentioned that concerns about the government's debt trajectory still exist, with repayment pressure from earlier bond issuances increasing. It is projected that from the 2026-2027 fiscal year to the 2030-2031 fiscal year, the net funds from debt issuance will decrease by 43.3%, and the government's total debt-to-GDP ratio will rise to 19.9%. However, these ratios are still much lower than the average level of advanced economies, and interest expenses account for only 1.2% of government revenue. With a series of financial indicators, Hong Kong's fiscal position remains robust, and Hong Kong's credit strength still ranks high among major advanced economies. The Research Brief also mentioned that as the government controls expenditure growth to restore fiscal balance, the recovery of the private market will be key to sustaining growth. The first five-year plan formulated by the government actively aligns with and coordinates with the national "14th Five-Year Plan," helping to clarify the priority order of public investment projects while implementing fiscal integration measures. Regarding long-term fiscal health, the Research Brief pointed out that population aging, low birth rates, and the impact of artificial intelligence on the labor market will further exacerbate public fiscal pressures. Despite the government's introduction of measures to encourage childbirth, the number of registered births hit a historic low in 2025. The Research Brief stated that effective responses to these issues require early, sustained, and comprehensive policy interventions rather than relying mainly on fiscal incentives. International experience shows that assisting labor force transitions is crucial for maintaining the tax base. Corporate income tax and personal income tax are important sources of regular income for the Hong Kong SAR government, so whether promoting complementarity between the labor force and artificial intelligence will directly affect the tax base. The Research Brief pointed out that the government will upgrade the Employees Retraining Board to the Skills Upgrading Authority, responsible for providing skills-based training and specifically incorporating elements of artificial intelligence applications, representing a timely policy response.