Financial Secretary Unveils Plan to Slash Civil Service Jobs and Boost AI Development to Tackle Economic Challenges
Hong Kong is set to address its ballooning deficit by reducing public sector spending, with plans to cut 10,000 civil service jobs by 2027, marking a 2% reduction annually. The annual budget unveiled by Financial Secretary Paul Chan on 26 February aims to balance the city’s books in a “planned and progressive” manner.
Public sector salaries will be frozen in 2025 as part of the broader fiscal consolidation programme, which also includes a 7% reduction in public expenditure by 2028. The deficit has soared to HK$87.2 billion, nearly double the previous forecast, due in part to a decline in land sale revenues, a key income source for Hong Kong.
Mr Chan also highlighted Hong Kong’s ambitions in artificial intelligence (AI), committing HK$1 billion towards developing an AI research institute. This initiative aligns with China’s push for technological self-reliance, aiming to position Hong Kong as a global platform for AI innovation.
However, despite these measures, some experts argue that more structural changes are required. William Chan, a partner at Grant Thornton Hong Kong, urged the government to explore new tax base expansion strategies to address the growing fiscal gap.
The budget’s focus on AI and the spending cuts were positively received by the market, with Hong Kong’s Hang Seng Index rising by 3%. Meanwhile, the property and technology sub-indexes also saw significant gains.
Hong Kong’s economic outlook remains uncertain, with GDP growth expected to be between 2% and 3% in 2025, compared to 2.5% in 2024. The city faces external challenges, including trade tensions between China and the US, which have impacted its financial stability. The US tariffs imposed on goods from China and Hong Kong, coupled with the geopolitical pressures surrounding the national security law, have added further strain on the region’s economic situation.
In response to a sagging property market, Hong Kong’s government will halt the sale of commercial sites in the coming year and may rezone some commercial properties for residential use, as land sales now contribute only 5% to government revenue, down from more than 20% in the past. High financing costs and an oversupply of properties continue to hinder a recovery in the real estate market.
Hong Kong’s fiscal reserves have also decreased, dropping from HK$734.6 billion in March 2024 to HK$647.3 billion by the end of the year.
