Hong Kong is to cut thousands of civil service jobs and invest in AI to tackle a rising deficit

HONG KONG (AP) — Hong Kong will cut thousands of civil service jobs and boost spending in artificial intelligence as it seeks to tackle an increasing deficit, authorities said Wednesday.

Finance Secretary Paul Chan said during a budget speech that there would be a “cumulative reduction” of government recurrent expenditure by 7% from now until 2027-2028. Hong Kong’s deficit had reached $87.2 billion Hong Kong dollars ($11.2 billion) for the financial year of 2024-2025, making it the third straight year of losses.

“It gives us a clear pathway towards the goal of restoring fiscal balance,” Chan said.

He said 10,000 civil servant posts would be cut by April 2027, representing a reduction of about 2% of the civil service in each of the next two years. Salaries will also be frozen in the civil service this year.

Chan also said that up to $195 billion Hong Kong dollars ($25 billion) worth of bonds will also be issued in the next five years to ensure progress of important infrastructure projects, with more than half used to refinance sort-term debt.

To boost income, Hong Kong will also raise its airport departure tax from 120 Hong Kong dollars ($15.50) to 200 Hong Kong dollars ($25.70) from the third quarter of the year, representing a 67% increase.

Separately, Hong Kong will also make a push into artificial intelligence by leveraging the city’s “internationalized characteristic to develop Hong Kong into an international exchange and co-operation hub for the AI industry.”

Authorities have also earmarked $1 billion Hong Kong dollars for an AI research and development institute, and will set up a $10 billion ($1.29 billion) innovation and technology fund to invest in “emerging and future industries of strategic importance.”

Hong Kong’s finances have been impacted by a weak property sector, as home prices plunged some 30% over the last three years. It is also grappling with economic uncertainty and geopolitical tensions as U.S.-China relations deteriorate.

The amount of land premiums paid by developers to the government has declined, hurting Hong Kong’s revenues. Land sales typically made up about a fifth of government income, but this has fallen to just above 5% in the last fiscal year.

Hong Kong’s fiscal reserves will shrink 12% from $734.5 billion Hong Kong dollars ($94.5 billion) to about $647.3 billion Hong Kong dollars ($83.3 billion) by the end of March, and a further 10% in 2025-26, Chan said.