Financial Secretary Paul Chan today announced that the Government will adjust two transport subsidy schemes, including the $2 Scheme, in order to reduce government expenditure by about $6.2 billion in the next five years.

 

This measure is part of the Government’s efforts to enhance the fiscal consolidation programme that was put forward in last year’s Budget.

 

Unveiling the enhancements to the programme in his 2025-26 Budget this morning, Mr Chan said the Government will focus on strictly controlling its expenditure, supplemented by increasing revenue. The impact to the general public should be minimised.  

 

The Government will lead by example to demonstrate its commitment to cutting expenditure while ensuring the delivery of high-standard public services. It will also continue to press ahead with infrastructure works projects in the Northern Metropolis and those related to the economy and people’s livelihood.

 

Furthermore, it will maintain the competitiveness of Hong Kong’s simple and low tax regime, avoid a considerable increase in tax rates or introducing new taxes, and uphold the “user pays” and the “affordable users pay” principles as far as practicable while increasing revenue.

 

Expenditure growth

To strictly contain expenditure growth, the Government will step up the Productivity Enhancement Programme by increasing the rate of reduction in recurrent government expenditure from the original 1% to 2% in 2025‑26, and extending this arrangement for two more years to 2027‑28.

 

Compared to 2023-24, recurrent government expenditure will decrease by around $3.9 billion in 2025-26, $19.5 billion in 2026-27, and $27.3 billion in 2027-28.

 

Meanwhile, Comprehensive Social Security Assistance, Social Security Allowance and statutory expenditure will not be affected.

    

The civil service establishment will be reduced by 2% each in 2026-27 and 2027-28.  By April 1, 2027, about 10,000 posts are expected to be deleted within the current-term Government.

 

The Government will provide a total of $68.1 billion in funding to the University Grants Committee-funded universities in the coming three years. This funding has reflected a 2% reduction target each year, in line with the magnitude of the Government’s recurrent expenditure cut.

 

The finance chief emphasised that such a funding level is still higher than the $63.2 billion in the last triennium.

 

Transport subsidies

After a review, the Government proposed adjustments to the two transport subsidy schemes that incur relatively high expenditure with a rapid growth rate.

 

On the Government Public Transport Fare Concession Scheme for the Elderly & Eligible Persons with Disabilities or the $2 Scheme, the concessionary fare will be changed to “$2 flat rate and 80% discount”, while the targeted beneficiaries remain unchanged.

 

Under the new arrangement, the beneficiaries will continue to pay $2 for trips with a fare below or equal to $10. For trips with a fare above $10, they will have to pay the full fare amount after the 80% discount. The number of concessionary trips will also be limited to 240 per month. 

 

Mr Chan noted that this fine-tuned proposal preserves the Government’s policy intent while striking a balance between enhancing the scheme’s sustainability and minimising the impacts to the beneficiaries. 

 

As for the Public Transport Fare Subsidy Scheme, from June 2025 onwards, the threshold of monthly public transport expenses incurred for receiving the subsidy under the scheme will be raised from $400 to $500. 

 

The Government will continue to provide a subsidy amounting to one-third of the expenses in excess of $500, and the prevailing subsidy cap will stay at $400 per month.

 

Upon implementation of the refined arrangements, the Government is expected to save $6.2 billion in the coming five years.

 

Pay freeze

In addition, the Government put forward that for 2025-26, the executive authorities, the legislature, the Judiciary and District Council members take a pay freeze. 

 

This involves the Chief Executive and politically appointed officials; Executive Council non-official members; civil service members; Legislative Council (LegCo) President, members and secretariat; Court of Final Appeal Chief Justice, judges of the courts at all levels, and other Judiciary members; and District Council members.

 

Capital works

The Development Bureau’s Project Strategy & Governance Office will support various departments in enhancing governance of public works projects on all fronts. 

 

The office is also formulating policies for the procurement of construction materials and products, through direct procurement by relevant works departments and centralised procurement by a single department. 

 

It has reviewed over 540 public works projects, achieving savings in construction costs by over 15%.      

 

The Government is also reviewing the scale and mode of delivery of district cooling systems in new development areas, such as Hung Shui Kiu/Ha Tsuen and the San Tin Technopole.

 

The preliminary estimate of works expenditure savings is at least $40 billion. The Environment & Ecology Bureau will report the review results in the second quarter.

 

Mr Chan has also requested the Audit Commission to organise workshops for the management of government department and public bodies to foster their understanding and adoption of principles and best practices in fiscal prudence and optimal use of public money.

 

He also asked the relevant bureaus to review the expenditure on social welfare, healthcare and education. They should, having regard to the city’s demographic changes, optimise resources and review the sustainability of the use of resources.

 

Increasing revenue

The rate of air passenger departure tax will be increased from $120 to $200 per passenger starting the third quarter of 2025-26. Government revenue is expected to increase by about $1.6 billion per year.

 

An application fee of $600 will be charged under various talent and capital investor admission schemes with immediate effect. The visa fees, to be charged based on the duration of limit of stay, will be raised to $600 or $1,300. It is estimated that government revenue will increase by about $620 million per year.

 

The Transport & Logistics Bureau will review the tolls of relevant government tunnels and trunk roads, the annual licence fee for electric private cars, parking meter charges as well as the fixed penalties for traffic offences, for better traffic management. The various adjustments could generate about $2 billion additional revenue per year.

 

The Government will explore introducing a boundary facilities fee on private cars departing via land boundary control points. Coaches, goods vehicles and the like will not be affected. Taking a fee of $200 per private car as an example, the measure will bring in revenue of about $1 billion per year.

 

In January 2025, the Government submitted a bill to LegCo on the implementation of the global minimum tax proposal drawn up by the Organisation for Economic Co-operation & Development to address base erosion and profit shifting. 

 

It aims to apply the global minimum tax rate of 15% on large multinational enterprise groups with an annual consolidated group revenue of at least 750 million euros and impose the Hong Kong minimum top up tax.

 

Subject to the passage of the bill, the proposal will bring in a tax revenue of about $15 billion for the Government annually starting 2027-28.

 

Financial resources

To consolidate and optimise the use of its financial resources, the Government reviewed the utilisation of the Anti‑epidemic Fund. Taking into account the expenditure requirements, the fund has a remaining balance of about $15 billion, which will be brought back to the Government’s accounts next month. This sum has been reflected in the revised estimate for 2024-25.

 

It also reviewed the funds set up outside the Government’s accounts by bureaus and departments for specific purposes from time to time. Some of these funds are seed capital funds that only use investment returns to meet their expenditure.

 

The Government proposes bringing back the first six seed capital funds with relatively large unspent balance, totalling about $62 billion, to its accounts in 2025-26, after setting aside resources to meet the necessary expenditure of these funds for the next five years so as not to affect their sustainable operation.