Hong Kong officials' pay freeze as government addresses fiscal deficit

The Hong Kong government plans to freeze salaries of all executive, legislative, judicial and district council staff in fiscal year 2025-26, said Financial Secretary Paul Chan Mo-po in the budget speech today.

“This(salary freeze) includes the chief executive and politically appointed officials; the non-official members of the executive council; members of the civil service; the president, all members, and secretariat of the Legislative Council; chief justice of the Court of Final Appeal, judges of the courts at all levels; and other members of the judiciary; and members of the District Councils,” said Chan. 

The Financial Secretary further announced that the civil service establishment will be cut by 2% each fiscal year from 2026-27 to 2027-28, a total of about 10,000 positions.

"The government took the improvement of economic conditions and room for private market salary increase into consideration,” said Chan in the press conference, “freezing civil servants’ salaries is more appropriate than cutting them.”

Reported as HK$87.2 billion for the fiscal year 2024-25, the expected consolidated budget deficit nearly doubles the government's initial forecast.

On the other hand, Hong Kong hired approximately 173,000 civil servants to serve about 7 million population, while in comparison, Singapore employed about 86,000 workforces for around 5 million residents.

“It (a pay freeze) is a sign of commitment to reduce expenditure,” said Linda Li Che-lan, Associate Head of Public and International Affairs at the City University of Hong Kong. “But we cannot rely on a pay freeze for civil servants to effectively cover the deficit.” 

Leung Chau-ting, the chairman of Hong Kong Federation of Civil Service Unions, worries that a pay freeze for public servants would cause a chain-reaction. 

“The decision can trigger large-scale wage freezes across industries following the authorities’ move, causing harm to the benefits for other non-government employees,” said Leung.

The salary freeze is more about showing attitudes about defending fiscal deficit, added Li. 

Hong Kong's fiscal status suffered in the past five years as it only recorded one yearly surplus. In terms of fiscal reserves, the government is not able to cover one year’s normal operation expenditure.

“Hong Kong is not as accustomed to fiscal deficits as other developed economies, as the government believes they need sufficient fiscal surplus to cope with external uncertainties,” said Michelle Lam, economist from Societe Generale HK Branch. “This is especially important given the tense geopolitical risks today.”

PwC HK pointed out that the nearly HK$ 100 billion deficit cannot be solved solely by cutting government spending, but requires the promotion of strategic industrial development to bring sustained economic development.

"In light of the current economic climate, it is imperative to prioritise cost-cutting measures as short-term solutions, but in the long, we suggest the government to pour efforts in establishing Hong Kong as a premier financial hub and adopting innovative solutions," said Agnes Wong, PwC South Private Clients Leader.