Hong Kong’s government unveiled a budget packed with giveaways including a one-time cash handout that economists said isn’t likely to spur growth, as the city struggles to stabilize an economy battered by political unrest and the coronavirus.
The main feature of the annual budget announced Wednesday is a payment of the U.S. equivalent of $1,284 to each permanent resident of the city 18 or older, aiding a population “overwhelmed by a heavy atmosphere,” Financial Secretary Paul Chan said. Chan estimated the deficit will reach a record $17.9 billion in the coming fiscal year.
The administration of Chief Executive Carrie Lam is seeking to stop the slide of the collapsing economy, rolling out the boldest budget in recent years amid blame for government inertia. Months of political unrest over China’s role in the city pushed Hong Kong last year into its first annual recession in a decade, with economists forecasting a second annual contraction in 2020 as disruptions from the coronavirus outbreak further depress output.
“In these unprecedented times, I am confident that the 2020-21 budget proposals will provide effective and targeted support to help the Hong Kong community withstand the current difficulties and gear up for a brighter tomorrow,” Lam said in a statement welcoming the spending plans.
However, the handout immediately came in for criticism from economists.
“This is obviously untargeted and regressive and will not solve the problem of those most severely hit,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA. “It is like throwing a drop in the ocean for many while you could have used that amount to cure the injuries of only a few.”
Ahead of the budget, accounting firm KPMG LLP pushed for handouts in the form of electronic vouchers to encourage direct spending, rather than saving or moving the cash abroad.
Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets, is skeptical as to whether Hong Kong residents will rush to spend a cash windfall.
“That sounds like a lot, but would you go out and spend it? The answer is no,” he said. “The economic benefits will only be marginal. Shops and restaurants are screaming for business. It’s not going to help.”
The handout is not the first in Hong Kong. The government distributed the current equivalent of $770 to all permanent residents in 2011. In 2018, the government introduced a “Caring and Sharing” program to hand out as much as $513 to certain low-income residents.
Singapore also announced cash handouts in its budget last week, pledging a one-time payout of between $71.52 and $215 for Singaporeans age 21 and older, as part of a $1.2-billion support package to help households cope with expenses. The city state is forecasting its biggest budget deficit in more than two decades in the coming fiscal year, with $4.6 billion in support for an economy slammed by the coronavirus outbreak.