Budget Address 2021: Effects of unemployment loan in doubt

Hong Kong's Financial Secretary Paul Chan Mo-po said on Wednesday unemployed citizens can apply for government-backed low interest personal loans of up to HK$80,000 but citizens cast doubt on its effectiveness because some fear that they cannot repay the loan.

The one-off loan at an interest rate of 1% per annum is part of the government’s relief measures announced by the Financial Secretary in his budget speech amid the city’s unemployment rate hitting a 17-year high of  7% in January, with more than 250,000 people unemployed.

“The labour market deteriorated sharply,” said Mr Chan in the speech. “This prolonged economic downturn has plunged some people into financial difficulties.”

As an extra financing option for the unemployed, eligible individuals can pay interest only in the first year, and then repay the principal plus interest within the next five years. People who repay on time will get the interest back at the end.

“I think the budget is reasonable and fair, especially in giving low interest rate loans to the unemployed,” said Teresa Tong, 65, former Partner at Ernst & Young Hong Kong. “ It’s a new idea for this year and it’s pretty innovative. It’s the right way to support the poor and unemployed rather than just offer them money.”

“But some people are reluctant to borrow from the government”, said Kwok Man-ho, district councillor Tin Shui Wai. He has received comments from about a dozen of residents and none of them planned to apply for the loan as they were not sure if they were able to repay later.

Besides, Mr Kwok also said the amount of the loan was too small, especially for people who were not living in public housing. “Since the unemployed have no idea when they can find jobs, most of them prefer direct unemployment grants instead of loans,” he said.

Wong Kin-wai, business director of Hong Kong Council of Social Service, said the loan would benefit a small number of people who needed money to make a quick turnover. 

“But most of the jobless people will not apply for the loan because they need to pay back later. The grassroots might not want to borrow,” Mr Wong said. The Financial Secretary said in the speech that despite some requests for direct temporary unemployment assistance, the government would not accept the proposal.

“It’s better to directly offer money, “ said Wong Yu-cheung, professor at the School of Social Sciences of Caritas Higher Institute of Education. “Because the unemployed don’t have income. What the government should do is to help them get through the difficult time instead of asking them to borrow.”

Hong Kong has suffered two consecutive years of recession with GDP shrinking 6.1% in 2020,  the largest decline on record, due to the COVID-19 pandemic. But Mr Chan said the city’s economy was expected to return to positive growth this year and the economy was seen growing by 3.5-5.5% in real-term this year on back of the stimulus effect of the fiscal measures.

The government also announced other counter-cyclical measures worth more than HK$120 billion, including 100% reduction of personal salaries tax, personal assessment tax and enterprises profits tax, all with a limit of HK$10,000.

The government expected a budget deficit of HK$101.6 billion this fiscal year, accounting for 3.6% of GDP due to the relief measures and the continued increase in recurrent expenditure.