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People in protective masks at a market in Hong Kong, March 30, 2020. (PHOTO: REUTERS / Tyrone Siu)
(Bloomberg) – Hong Kong is catching up with its global peers in its fiscal response to the coronavirus outbreak with this week’s announcement of an “unprecedented” stimulus package of HK $ 137.5 billion ($ 17.7 billion) focused on preventing massive job loss.
The new stimulus draws inevitable comparisons with spending measures revealed by its geographic neighbor and rival of the Singapore financial center, with the two governments among the first to face the threat of the coronavirus before it spreads beyond Asia.
When it comes to total spending, Singapore keeps going but Hong Kong is closing the gap, economists say. Singapore’s aid spending is equivalent to about 12% of gross domestic product, while the latest additions bring Hong Kong’s outlay to about 10% of GDP.
“Overall, it appears that Singapore is being more proactive,” said Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. One factor: Hong Kong appears to be moving more slowly to bring stimulus to the economy, particularly with its HK $ 10,000 cash on hand not expected to materialize until the summer, he said.
Singaporeans will begin receiving cash from distribution programs as soon as this month, the government said.
However, in job retention spending, Hong Kong is doing better, as the government’s job security program offers wage subsidies for six-month employees at 50% of salary. When it comes to time coverage, that’s “probably better than the Singapore package,” which covers 75% of wages, but only for April, said Tommy Wu, senior economist at Oxford Economics in Hong Kong.
While the tax measures in the two territories are “very similar,” Singapore faces a “greater risk of widespread cuts and bankruptcies,” having instituted a one-month closure of non-essential services that covers about 30% of the GDP, said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. In Singapore.
In comparison, “Hong Kong has not resorted to such stringent measures, with restaurants and shops still open as Covid’s spread has been better contained,” Chua said. Social gatherings of up to four people are still allowed, and a smaller group of pubs, cinemas, gyms and other businesses have been closed.
Here is a closer look at what the two governments have announced so far and how they compare:
Hong Kong has submitted nearly HK $ 287.5 billion of virus-related direct aid following the announcement of the measures on Wednesday.
The HK $ 30 billion anti-epidemic fund announced in February included cash for hospitals and virus containment efforts, as well as grants for industries.
This year’s budget, announced on February 26, included a HK $ 120 billion aid package focused on a HK $ 10,000 booklet for Hong Kong permanent residents 18 years of age and older, but not expected to go until the third trimester or later. That package came after the city went into recession last year after months of anti-government protests.
Hong Kong companies and vulnerable social groups also received around HK $ 35 billion in stimulus and living expenses during the months of protests that rocked the city. Economists criticized those efforts as “peanuts,” given the city’s large cash reserves.
Total spending related to the city-state virus from three aid tranches is close to S $ 60 billion ($ 41.8 billion).
Singapore was one of the first governments in the Asia-Pacific to present a special stimulus to offset losses from the outbreak. Announced S $ 6.4 billion in direct medical response and support efforts for homes and businesses as part of its annual budget on February 18.
Amid corporate pleas, the government released most of its stimulus in a S $ 48 billion package on March 26, which includes more wage subsidies and a freeze on government fees.
The third package, for S $ 5.1 billion, increased household cash deliveries to S $ 600 for each Singaporean adult and provided additional relief to businesses, especially tourism-related businesses and restaurants.
The Hong Kong government, often criticized for conservative spending due to wide reserves, is forced to switch to a more aggressive approach.
This spending will result in a record budget deficit of HK $ 276.6 billion for fiscal year 2020-2021, Executive Director Carrie Lam said on Wednesday.
The latest aid package includes a 20% discount on transit fees with the government and MTR Corp. sharing the cost, further reduction of rent on government properties, and plans to create 30,000 jobs, including civil service positions and internships. in the next two years.
Other relief measures in the February budget package include low-interest commercial loans fully guaranteed by the government, a waiver of business registration fees, subsidies on utility bills, and tax breaks for individuals and businesses.
To help home buyers and reduce interest rate volatility, Hong Kong Mortgage Corp. will launch a pilot program that offers fixed-rate mortgage loans through banks.
Singapore has temporarily waived the corporate tax for employing foreign workers, extending relief until April as part of the third package.
Officials have pledged legislation to ensure that a property tax refund announced earlier this year is leaked to tenants, responding to a request from the restaurant community.
Singapore has improved loan financing programs, particularly for small and medium-sized businesses. That has increased the government’s risk share on loans started since April 2020 to 90%, from 80%.
Government fees and charges have been reduced or waived, and corporate income tax payments have been deferred. Self-employed individuals will receive special income relief.
Financial secretary Paul Chan has repeatedly asked owners and big developers to take on a certain “social responsibility” and give tenants a break from rent. He repeated his demand in a recent blog post, warning that it could take six months to reverse the economic impact of the outbreak.
Rail operator MTR Corp. and the Hong Kong Airport Authority, the first majority property and the last exclusive government property, agreed to cut rents in October.
As Singapore tightened social isolation measures, the government promised more resources for households, offering public collection of government-issued disinfectants and hand masks.
The Hong Kong Monetary Authority is somewhat disadvantaged given the long-term link between the local currency and the US dollar.
The de facto central bank followed the Fed by lowering base lending rates twice last month, while reducing bank capital reserves to free up cash and fuel lending.
The HKMA has more recently reduced regulatory reserves and has moved to help banks manage liquidity. Recent movements have helped soften the Hong Kong dollar.
The Singapore Monetary Authority, which generally meets twice a year and uses the currency exchange band as its main policy tool rather than interest rates, has stepped in with its virus measures while claiming that the policy Prosecutor will have the main role in this crisis.
In an unprecedented easing move in late March, the MAS lowered the midpoint of the currency band and reduced the slope to zero. This implies that the central bank will allow for a weaker exchange rate to help support export-led growth and avoid deflation risks.
The MAS has relaxed the banks’ capital rules to boost lending.
© 2020 Bloomberg L.P.
