Fiscal Sustainability, Revenue Volatility, and Policy Reform in Hong Kong: A Public Finance Perspective

This research paper examines Hong Kong’s fiscal sustainability through the lens of revenue volatility, debt expansion, and institutional reform. It argues that the territory’s public finance structure is overly dependent on cyclical and unstable sources such as property and stock market revenues, while rising infrastructure commitments and prolonged deficit reduction timelines have intensified concerns about fiscal credibility. Under the Linked Exchange Rate System, Hong Kong lacks monetary autonomy, making prudent fiscal management especially important for maintaining investor confidence and exchange-rate stability. The research paper revisits historical fiscal turning points, including the post-Asian Financial Crisis recovery and the revenue surge during the 2007–2008 market boom, to show how volatile asset-based revenues can temporarily mask structural weaknesses. It further critiques the proposed introduction of a goods and services tax, suggesting that high administrative costs and regressive effects outweigh its benefits in the current context. Instead, the paper recommends a broader reform agenda, including expenditure rationalization, modernization of tax administration through artificial intelligence, diversification of revenue sources, and strategic development models for education, healthcare, and infrastructure. Overall, the study contends that Hong Kong must move beyond short-term borrowing and cyclical windfalls toward a more diversified, efficient, and resilient public finance framework.