People wearing face masks, following the coronavirus disease (COVID-19) outbreak, walk on a street market in Hong Kong, China February 16, 2022.
People wearing face masks, following the coronavirus disease (COVID-19) outbreak, walk on a street market in Hong Kong, China February 16, 2022. Reuters / LAM YIK

Hong Kong will offer tax breaks, handouts and subsidies to small businesses and residents, to mitigate the impact of a new wave of social restrictions to curb COVID-19 infections, Finance Secretary Paul Chan said in his 2022/23 budget speech.

The measures were announced as hundreds of bars, restaurants and small retailers warned they were months away from closure, following the imposition of the strictest restrictions since the pandemic began in 2020.

"Our economy and people's livelihoods have been under immense pressure in recent months," Chan told legislators via videoconference on Wednesday. "Economic performance in the first quarter is not optimistic."

Chan said "countercyclical measures" in the budget to support the economy totalled more than HK$170 billion ($21.79 billion), with spending on anti-epidemic measures put at more than HK$54 billion.

The global financial hub has doubled down on its "dynamic zero COVID" strategy, which aims to eradicate all outbreaks, following mainland China's lead even as the rest of the world adjusts towards "living with the virus."

Given the city is facing thousands of infections a day and the numbers are growing, some analysts predict at least one or two quarters of economic contraction after recovering last year from the city's most prolonged recession in 2019-2020.

Bars, gyms, beauty parlours and 12 other types of venues are closed, while restaurants cannot operate beyond 6.00 pm. Apart from grocery stores, most shops are deserted as residents are back working from home. The border is virtually shut with the finance sector complaining this has caused an exodus of talent and made operating a regional hub out of Hong Kong difficult.

The restrictions are the most draconian yet to be implemented, and are expected to last until at least April 20.

The budget measures announced on Wednesday include a 100% reduction in salaries tax, capped at HK$10,000, handouts of HK$10,000 consumption vouchers, financial aid for the unemployed, and subsidies for directly impacted businesses.

Residents will also be given tax deductions related to their rent payments, as well as subsidies for transport and utilities.

A 100% reduction in profits tax capped at HK$10,000 is expected to benefit 151,000 firms, Chan said. In addition, the government will help small firms with loan guarantees, export financing, and debt repayment holidays.

Hong Kong's economy is expected to grow 2.0% to 3.5% this year after expanding 6.4% in 2021, Chan said, adding the forecast takes into account a recovery in the second part of the year once the epidemic is brought under control.

"The successful control of the epidemic is the key to safeguarding our economy and people's livelihood," Chan said.

($1=7.8028 Hong Kong dollars)