Hong Kong’s Bold Strategy: Cutting Jobs & Investing in AI to Tackle Deficit

Hong Kong is making drastic moves to tackle its growing budget deficit. The government has announced a major reduction in civil service jobs while increasing investment in artificial intelligence (AI). The move comes as the city struggles with a declining property market, economic uncertainty, and geopolitical tensions.

Massive Civil Service Job Cuts

Finance Secretary Paul Chan unveiled plans to reduce government spending by 7% over the next three years. This includes cutting 10,000 civil servant positions by April 2027, which will see a 2% reduction in staff annually. Civil service salaries will also be frozen this year.

The Rising Deficit & Economic Challenges

Hong Kong’s budget deficit has soared to HK$87.2 billion ($11.2 billion) for 2024-25, marking the third consecutive year of losses. One of the major reasons is the struggling property sector, where home prices have plummeted by 30% over the past three years. Additionally, land sales revenue, which once made up about 20% of government income, has dropped to just 5%, further straining finances.

Boosting AI Investment Amid Job Cuts

While cutting thousands of jobs, Hong Kong is simultaneously increasing AI investments. The government is positioning itself as a hub for AI development, leveraging the city’s international connections to boost research and collaboration.

• $1 billion HKD will be allocated for an AI research and development institute.
• $10 billion HKD ($1.29 billion) will be invested in innovation and technology funds to support emerging industries.

Airport Departure Tax Hike & Bonds Issuance

To increase revenue, Hong Kong is raising its airport departure tax by 67% from HK$120 ($15.50) to HK$200 ($25.70) by Q3 2025.

The government will also issue bonds worth HK$195 billion ($25 billion) over the next five years to fund key infrastructure projects and refinance short-term debt.

Declining Fiscal Reserves

Hong Kong’s fiscal reserves will drop 12% from HK$734.5 billion ($94.5 billion) to HK$647.3 billion ($83.3 billion) by March 2025. Another 10% decline is expected in 2025-26, signaling a pressing need for financial restructuring.

Hong Kong’s financial crisis has pushed the government to make bold decisions. The simultaneous reduction in government jobs and heavy investment in AI marks a strategic shift in how the city is addressing economic challenges. While AI innovation may create new job opportunities in the future, the immediate impact of job cuts and increased taxes will be felt by residents and businesses alike.

Stay tuned for updates as Hong Kong navigates these major economic changes!