23rd December 2025 – (Hong Kong) During his 16th December duty visit to Beijing, Chief Executive John Lee told President Xi Jinping that the Hong Kong government’s accounts are expected to swing from deficit to surplus this year. After half a decade in which deficits appeared more often than not, the prospect of a turnaround matters not merely as good news, but as evidence that the city’s fiscal system retains a formidable capacity to rebound.
The past six years have included five deficits, and with them a steady drumbeat of warnings about “structural deficits” and creeping fiscal deterioration. Some of that concern was understandable in a period marked by pandemic aftershocks, a softer property market and global uncertainty. Yet the new outlook is a reminder that Hong Kong’s finances are not a straight-line story of decline. They are cyclical, market-linked and—when conditions improve—capable of snapping back with surprising speed.
That sensitivity to asset markets and capital flows is often described as a vulnerability. It can also be read, more constructively, as a distinctive strength – Hong Kong’s ability to monetise activity in its financial markets and translate it into public revenue remains unusually powerful by international standards. The challenge for Budget 2026 is not to deny that reality, but to harness it more deliberately—turning a cyclical lift into a platform for longer-term stability.
To see why the shift is noteworthy, it helps to recall the fiscal picture painted earlier in the year. In late February, Financial Secretary Paul Chan’s 2025/26 Budget put the 2024/25 deficit at HK$87.2 billion and projected reserves falling to HK$647.3 billion. He cited a weak asset market, revising land premium income down by HK$19.5 billion to HK$13.5 billion and cutting stamp duty revenue by HK$13 billion to HK$58 billion. He also projected a HK$62 billion transfer from six “seed funds” back into the government’s accounts. Even with that support, he expected a HK$67 billion deficit in 2025/26, a return to surplus in the operating account by 2026/27, and a later recovery in the consolidated position.
Ten months later, Lee’s message in Beijing suggests the recovery may have arrived sooner than anticipated. Rather than treating this as a simple forecasting embarrassment, it is more useful to recognise what it signals: the pace of market normalisation—and the speed with which fiscal receipts can improve when trading, fundraising and sentiment strengthen. Hong Kong’s public finances are not immune to shocks, but they are also not slow-moving. When conditions turn, revenues can follow.
The principal driver appears to be the revival in equity-market activity, boosted by mainland “northbound” flows and renewed participation from investors. For the first 11 months of this year, average daily turnover in Hong Kong equities rose to HK$255.8 billion, up 95% from HK$130.9 billion a year earlier. As turnover rises, so does stamp duty. In the first two quarters alone, stock stamp duty revenue reportedly reached HK$44 billion, during a period when average daily turnover was HK$240.2 billion—118% higher than the comparable period last year.
These numbers do more than brighten the revenue line. They challenge the bleakest interpretations of Hong Kong’s fiscal future. The city’s finances still demonstrate what might be called structural resilience – when external conditions are not actively hostile and markets are functioning normally, the tax base can compensate for weaker land-related receipts. In that sense, the government’s capacity to fund services and investment has not vanished; it has been operating under cyclical pressure.
The more enduring policy lesson is not that land revenues no longer matter—they still do—but that the revenue base remains overly concentrated. Hong Kong has long leaned heavily on property-linked income, and when that stream softens, the debate can become unnecessarily existential. Budget 2026 is an opportunity to reframe the conversation. Instead of oscillating between panic in downturns and complacency in upturns, the government can pursue a steadier approach: broaden and stabilise revenue sources, improve forecasting, and align spending more explicitly with long-term needs.
With strong national support and revived global interest, Hong Kong’s capital markets have regained momentum. In the first 11 months of the year, IPO fundraising reportedly reached HK$259.4 billion, up 228% from HK$79.1 billion a year earlier. Total fundraising hit HK$575 billion, up 240% from HK$169 billion. These figures underline a point that matters to both investors and households – the city’s role as a fundraising and price-discovery hub remains intact, and in periods of renewed activity, it directly strengthens the public purse.
Meanwhile, stamp duty is inherently sensitive to trading volume. That volatility is not a reason to dismiss the revenue; it is a reason to manage it wisely. The practical approach for Budget 2026 is to treat buoyant market-linked income as an accelerant—useful for building capacity and funding transitions—while continuing to develop a more predictable fiscal mix. This is where policy can be constructive rather than reactive.
One sensible route is to use the current upswing to review the structure of financial-asset-related revenues alongside global tax developments, including the implementation of the global minimum tax framework (BEPS 2.0). The objective need not be punitive. A modern financial centre can sustain a tax system that is competitive while also being coherent and durable—one that converts the success of its markets into support for infrastructure, productivity-enhancing investment and social readiness for demographic change.
The numbers hint at the scale of what is possible. If average daily turnover can remain around HK$300 billion, stamp duty alone could generate well over HK$100 billion annually. That is not a guarantee—markets do not offer certainty—but it is a meaningful capacity that many governments would envy. The task is to treat that capacity as part of a diversified fiscal strategy rather than as a single lever.
The return of surplus should encourage the government to invest with purpose – funding strategic projects that expand long-term economic space, improving healthcare and social services as the population ages, and ensuring that major development plans—such as the Northern Metropolis—are resourced in a way that is credible over multiple years.
Broad cash handouts can provide short-term relief, but they are a blunt policy tool and expensive at scale. If officials want to celebrate a fiscal turnaround in a way that strengthens the social fabric, targeted measures—support for low-income households facing cost pressures, investments in skills and mobility, and health and eldercare capacity—tend to deliver more lasting value than universal payouts.
It is also fair—and ultimately constructive—to acknowledge the role of internal transfers, including the HK$62 billion brought back from six seed funds. Such accounting moves can be legitimate parts of fiscal management, especially when designed to optimise the use of public resources. The key is transparency and intent: if part of the improved position is technical, the government should say so plainly, and then use the breathing room to make the underlying system stronger.
Hong Kong has faced repeated criticism over the years for projections that diverge widely from outcomes, including episodes in which deficits appeared far larger than earlier estimates because stamp duty and land revenues underperformed. A more upbeat moment is precisely the right time to improve the machinery—because reform is easiest when it is not forced by crisis.
The city’s traditional reliance on incremental budgeting, which adjusts last year’s baseline by small percentages, can appear orderly but risks embedding inertia. A forward-looking Budget 2026 could pilot or expand the logic of zero-based budgeting in selected departments or programmes – requiring clearer justification of spending lines, measuring outcomes more rigorously, and reallocating resources away from low-impact legacy commitments towards higher-return priorities. This does not have to be an ideological purge. It can be a managerial upgrade—one that matches the sophistication Hong Kong claims in finance with equal sophistication in public administration.
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