(Adds more on size of deficit in paragraph 2, comments from tax expert in paragraph 18)

By Clare Jim and Donny Kwok

HONG KONG, Feb 22 (Reuters) - Hong Kong is set for back-to-back deficits but will give cash handouts and offer some help to first-time home buyers to help the economy recover from prolonged COVID-19 restrictions, the city's government announced in its budget on Wednesday.

The global financial hub expects to record a deficit of HK$140 billion ($17.8 billion) in 2022/23, Financial Secretary Paul Chan said, when delivering the budget to the Legislative Council. That is around 5% of gross domestic product (GDP), and more than double the HK$56 billion the government initially estimated.

He forecast another deficit of HK$54.4 billion for 2023/24.

Chan told legislators the city was at the beginning of an economic recovery, no longer shackled by stringent COVID measures that have isolated it from the rest of the world for years.

"I believe that Hong Kong's economy will visibly recover this year, and I remain positive," Chan said, noting he would take a "moderately liberal" fiscal stance this year to sustain the impetus for economic recovery.

"However, the economic recovery is still in its initial stage, and there is a need for our people and businesses to regain vigour."

The city's economy is expected to grow 3.5%-5.5% this year after contracting 3.5% in 2022, Chan said. Underlying inflation is expected to hit 2.5%.

Hong Kong will issue vouchers worth HK$5,000 ($637) per person to all adults this year, half the amount issued in 2022.

Chan flagged tax rebates in salaries and profits taxes, capped at HK$6,000, lower than the caps set for the previous budget.

STAMP DUTY "ADJUSTMENT"

Amid weakness in property prices that fell more than 15% last year, the government also announced it would adjust stamp duties for first-time local home buyers, with a "view to easing the burden on ordinary families". Properties valued at HK$10 million and less will benefit.

The measure would benefit 37,000 buyers and cost the government HK$1.9 billion.

However, Chan said other demand side residential measures introduced over the past decade to cool one of the world's hottest property markets would remain unchanged.

The Hang Seng Properties sub-index extended gains to as much as 1.3% in afternoon trade.

The sustainability of Hong Kong's fiscal reserves, however, remains a concern after authorities spent more than HK$600 billion containing the spread of COVID and providing relief for businesses and families struggling with pandemic restrictions.