Hong Kong plans to reduce spending by cutting 10,000 civil service jobs to curb its growing deficit while pushing for major advancements in AI. These efforts come as the city faces challenges from global economic uncertainty, geopolitical tensions, and a struggling property market.
“It gives us a clear pathway towards the goal of restoring fiscal balance in the operating account, in a planned and progressive manner,” according to the city's Financial Secretary Paul Chan on announcing the annual budget.
Chan announced that 10,000 civil servant jobs will be cut by April 2027, reducing the civil service workforce by 2% annually over the next two years. Additionally, public sector salaries will be frozen this year.
He stated that the “reinforced” fiscal consolidation program aims to cut public expenditure by a total of 7% by the end of the fiscal year on 31st March 2028.
Furthermore, Chan said that the spending cuts would help establish a “sustainable fiscal foundation for future development” after a steep decline in land sale revenue pushed the deficit to HK$87.2 billion, almost double the earlier forecast of HK$48.1 billion.
Chan stated that, in alignment with China's broader push for self-reliance in AI and other advanced technologies like robotics, Hong Kong will “leverage its strength as an international platform for stepping up the development of the AI industry.”
The city has allocated HK$1 billion to establish an AI research and development institute, Reuters reports.
However, some observers argued that the budget fell short and urged deeper structural reforms to address Hong Kong's financial challenges.
“While the city's fiscal reserves provide a buffer, the escalating deficit demands immediate and strategic actions,” stated William Chan, a partner at Grant Thornton Hong Kong.
“To safeguard Hong Kong's future prosperity, we urge the government to immediately launch a comprehensive tax base expansion study.”
However, the AI push and spending cut plans were well received by the markets. Hong Kong's Hang Seng Index climbed 3%, while the property and tech sub-indices gained over 3% and 4%, respectively.