Carrie Lam's Inaugural Policy Address: Same Problems, New(ish) Solutions

Photo: SCMP

Chief Executive Carrie Lam’s maiden policy address outlined a clear, if unsurprising, vision for Hong Kong’s economic future. The economic keystone of Ms. Lam’s policy address was, as expected, housing policy. Meeting housing needs was characterized as the “top priority” for the government. Beyond the dominant theme of housing, Ms. Lam’s economic proposals also included schemes to bolster the competitiveness of Hong Kong’s flagging innovation and technology sector and a reduction of the profits tax for small- and medium-sized enterprises. 

Affordable housing has been a perennial issue for Hongkongers. The city is the world’s most expensive housing market, both in absolute terms and in relation to the median income of its residents. As a relatively small place, insufficient land supply is often cited as the root cause of Hong Kong’s high property prices. With its reputation as an intensely dense, urban city, it is also often forgotten that country parks comprise forty percent of Hong Kong’s land area—six times as much as residential land. 

Although these explanations are intuitively appealing, the government in Hong Kong has ownership rights over all land, and holds large parcels of land—even beyond the country parks—that could be used for residential development. Some point to the political incentive to pander to developers and middle-class property owners, both of whom benefit tremendously from sustained high prices, as being behind the government’s reluctance to increase the land supply—a measure that would ultimately depress prices. 

That said, the government has for a while committed to releasing more land for development, and it does seem like this commitment is strengthening under Ms. Lam’s leadership. Whereas previous policy addresses have seen a greater emphasis demand-side measures like the imposition of stamp duties, Ms. Lam’s speech was markedly more focussed on supply issues. Indeed, although “hot money flows” (speculative purchases) from the mainland are responsible for inflated prices, particularly in the luxury market, such speculation is no excuse for a lack of affordable public housing. 

One of the new measures put forth by Ms. Lam in her election manifesto, and further elucidated in the policy speech, is a “Starter Homes” scheme to boost homeownership among the middle class—those who do not qualify for public housing but cannot afford to to fulfill the widely held aspiration of possessing property. 

She also envisioned a steady transition from the Public Rental Housing program to the “Green Form Subsidized Home Ownership” scheme, which she described as having “merits and no shortcomings”. The program calls for the subsidized sale of some flats in new developments, and may also involve the government buying flats and selling them below market to eligible individuals and families. In essence, this signals a transition in the government’s priority from simply providing a place to live to ensuring that public housing tenants can ultimately own their home. 

The fiscal math behind Ms. Lam’s varied housing initiatives will only be clear when Finance Secretary Paul Lam presents his annual budget, but going by the government’s track record, fiscal prudence can be taken as a given. In stark contrast with most developed governments, Hong Kong’s runs a consistent and sizable surplus. Struggling lower-income residents have long hoped for more generosity from the treasury; perhaps Ms. Lam’s tenure will see some of those hopes come to fruition. 

Beyond housing, the Chief Executive also outlined renewed government support for Hong Kong’s innovation and technology sectors. Alluded to in the policy address, in which Ms. Lam speaks of Hong Kong “catching up in the I&T (innovation and technology) race”, Hong Kong lags behind regional rivals in generating technology entrepreneurship and cutting-edge research. This year, Hong Kong slipped to an historic low of 16th in the Global Innovation Index, well behind Asian leader Singapore’s 7th place.

Critics have noted in the past that having the government take the “easy” approach to the technology sector through tax breaks and the development of infrastructure like the Hong Kong Science Park do not generate convincing long-term results. Education and R&D (Research and Development) are where Hong Kong has historically been weakest. 

Ms. Lam’s policy address tackles these concerns, presenting the goal of doubling R&D spending as a proportion of GDP. This includes billions in university research grants, as well as a fund to foster talent in the technology sector and “encourage our young people to engage in research and product development”. She also introduced a plan to create an interdepartmental Steering Committee to examine the city’s potential for growth in various areas of innovation and technology. 

In her final substantiated economic policy revelation, Ms. Lam announced that profits tax would be halved to 8.25% for the first HK$2 million in profits. The measure, which will undoubtedly be popular among the politically strong business constituency, is the kind of business-friendly policy that Hong Kong is famous for. That said, the marginal benefit of the policy may be limited on the economic front: the profits tax was low to begin with, and the policy intrinsically benefits profitable small enterprises, as opposed to those that are struggling to stay afloat. However, with the government’s secure financial position, the sweetener to small-scale businesses is perhaps not inappropriate. 

On the economic front, the policy address struck an optimistic tone and indicated that Ms. Lam intends for a change in tack from her predecessor’s policies. However, critics have pointed out that there were scant details on some policies, such as the much-touted Starter Homes plans, and that more may need to be done to ensure the city’s long-term economic competitiveness. It is to be seen whether Ms. Lam’s government can follow through on her economic ambitions, but cautious optimism may be warranted.