Following through the Fiscal Consolidation Programme
256. We will continue implementing the reinforced fiscal consolidation programme put forward in last year's Budget. Key principles are as follows:
| (a) | to focus on strictly controlling government expenditure, supplemented by increasing revenue; |
| (b) | to maintain the competitiveness of Hong Kong's simple and low tax regime, and to avoid raising tax rates substantially or introducing new taxes; and |
| (c) | to uphold the "user pays" and "affordable users pay" principles as far as practicable in increasing revenue. |
Strictly Containing the Growth of Operating Expenditure
257. We will continue strictly containing the growth of the Government's operating expenditure. Bureaux and departments will make sustained efforts to review their resource allocation and work priorities, and provide public services with better cost‑effectiveness through consolidating internal resources, streamlining procedures and leveraging technology.
258. We will take forward the Productivity Enhancement Programme as planned. On the premise that Comprehensive Social Security Assistance (CSSA), Social Security Allowance and statutory expenditures will not be affected, the Government's recurrent expenditure will be cut by two per cent in both 2026‑27 and 2027‑28, delivering further savings of about $7.8 billion and $15.6 billion respectively over 2025‑26.
259. The civil service establishment will be reduced by two per cent in each of the coming two financial years to an estimated level of about 188 000 posts by 1 April 2026, resulting in a cumulative deletion of over 10 000 posts within this term of Government.
260. Regarding the 2026‑27 civil service pay adjustment, the Government will conduct the Pay Trend Survey in accordance with the established mechanism. The Chief Executive‑in‑Council will then make a decision having due regard to the six factors.
Increasing Revenue
261. On increasing revenue, we will uphold the "affordable users pay" principle in implementing the following measures:
| (a) | The rates of stamp duty on residential property transactions valued above $100 million will be raised from 4.25 per cent to 6.5 per cent, affecting about 0.3 per cent of residential property transactions. It is estimated that revenue will increase by about $1 billion per annum. This measure will take retrospective effect from tomorrow upon passage of the amendment bill by the LegCo; and |
| (b) | Last year, we amended the Inland Revenue Ordinance to implement OECD's package by imposing the global minimum tax and implementing the Hong Kong minimum top‑up tax on large multinational enterprise groups with an annual consolidated revenue of or above EUR 750 million. This measure is expected to bring in an additional tax revenue of about $15 billion for the Government annually starting from 2027‑28. |
Consolidating and Optimising the Use of Government Financial Resources
Consolidating Funds Established Outside the Government's Accounts
262. As announced in last year's Budget, we have brought back $61.5 billion from six seed capital funds with a relatively large unspent balance to the Government's accounts for optimising the use of government financial resources. I have also instructed various policy bureaux to conduct a full review of the remaining 36 purpose‑specific funds established outside the Government's accounts. After carefully assessing the individual circumstances of the funds, we propose:
| (a) | revising the financial arrangements of four funds to bring back their unspent balances, on the premise of supporting their operations in the next five years; |
| (b) | closing a fund which has accomplished its policy objectives and two funds for which objectives can be met more effectively under the established funding mechanism, and bringing back their unspent balances; |
| (c) | consolidating six funds into three for enhanced efficiency in the use of resources; and |
| (d) | maintaining the financial arrangements of the remaining 23 funds. |
The above measures are expected to bring back about $15.8 billion to the Government's accounts in 2026‑27.
Transferring the Accumulated Surplus of the Bond Fund
263. The Bond Fund, established in 2009 outside the Consolidated Account, aims to support the issuance of bonds including Silver Bonds, iBonds and alternative bonds under the Government Bond Programme (GBP). Since 2024, Silver Bonds have been issued under the Infrastructure Bond Programme instead, with the proceeds being credited to the Capital Works Reserve Fund. The majority of bonds issued under the GBP will be held to maturity for redemption by the end of this year.
264. By the end of March, the balance of the Bond Fund is estimated to be about $150 billion, with an accumulated surplus of about $37 billion after deducting outstanding bond balances and interest payments etc. To optimise the use of the surplus of the Bond Fund, the Government will introduce a resolution to the LegCo to enable the transfer of the accumulated fund surplus to the Consolidated Account in 2026‑27.
Transferring Investment Income of the Exchange Fund
265. The Exchange Fund achieved record‑breaking performance last year, delivering an investment income of $330 billion. As at the end of last year, the total value of assets under the Exchange Fund exceeded $4.1 trillion, which would suffice to maintain monetary and financial stability in Hong Kong. On the premise that the Exchange Fund's function to maintain the stability and integrity of the local monetary and financial systems will not be compromised, I propose, under the Exchange Fund Ordinance, transferring $75 billion in each of the coming two financial years, totalling $150 billion, from the Exchange Fund to the Capital Works Reserve Fund in support of the NM and other infrastructure projects.
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