Annual deficits exceeded US$22 billion in four of the past five years, according to official figures -- the worst balance sheet since the former British colony was handed over to China in 1997.
Financial Secretary Paul Chan said the city will end its deficit by 2028 and return to surplus by the next year, with the help of bond sales raising up to US$25.1 billion annually -- as well as the slashing of about 10,000 civil service jobs by early 2027.
"We try our best to diversify and grow our economy, but at the same time, it is a belt-tightening budget," Chan told reporters at a press conference.
Hong Kong is being weighed by China's economic malaise and a looming US-China trade war, following an opening salvo of tariffs from President Donald Trump.
The economy is expected to grow between two and three percent this year, on par with last year's 2.5 percent.
Announcing a series of cuts, Chan said in his annual budget speech that the government is aiming for a "cumulative reduction" of recurrent expenditure by seven percent through to 2027-28.
He announced a pay freeze for all branches of government and said around six percent of its 170,000-strong civil service will be trimmed by April 2027.
Other spending curbs include a cap on a transport subsidy for people aged above 60.
But Hong Kong's Democratic Party said top government officials should go further and volunteer for pay cuts, adding that the tweak to transport subsidies may chill economic activity.
Hong Kong has long relied on land-related revenue to fill government coffers, but income from that plunged last year to US$1.7 billion -- the lowest in two decades.
Chan said Hong Kong's asset market was "under pressure" and that land-related revenue will rebound to US$2.7 billion this year.
"It would be responsible on the part of the government to adopt a relatively conservative estimate," Chan told AFP.
The government said it would not put commercial land up for sale in the coming year amid high office vacancy rates.
- 'Northern Metropolis' -
To reverse the property slump, Hong Kong will also lower the stamp duty on homes valued under US$515,000.
Marcos Chan, from commercial real estate firm CBRE Hong Kong, said the budget had "fewer policy measures aimed at directly boosting property demand".
The finance chief said Wednesday that the government would spend US$129 million to set up the Hong Kong AI Research and Development Institute, in a bid to make the city "an international exchange and co-operation hub for the AI industry".
The city is eager to lure back international visitors after its reputation took a hit from political unrest and pandemic-related curbs.
The government will allocate US$159 million to its tourism body to promote "distinctive tourism products" such as horse racing and pandas.
Activists from the League of Social Democrats, one of the last remaining pro-democracy groups, cancelled their annual pre-budget petition on Wednesday morning citing "strong pressure".
The group planned to call for pay cuts for top officials, greater government accountability and halting costly infrastructure projects such as the "Northern Metropolis".
But Chan said on Wednesday the government will push ahead with the project, which aims to integrate Hong Kong more closely to its neighbour Shenzhen.
"We must accelerate the development of the Northern Metropolis. It is an investment in our future," he said.
The International Monetary Fund said last month that Hong Kong was "recovering gradually after a protracted period of shock".
The city's benchmark Hang Seng Index, which has rallied to a three-year high thanks to a recent surge in mainland tech companies, rose more than three percent Wednesday.
hol/sco
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