[Financial Budget. Looking Forward] How should we view the fiscal deficit?

01 perspective

Written by: Comment Editor

2020-02-18 18:35

Tang Yingnian, member of the Standing Committee of the Chinese People's Political Consultative Conference and the former Financial Secretary of Hong Kong, sent a message in the Spring Festival this year, without having to look at the deficit as a "flood beast", as long as it is properly handled, it can be spent. In Macau, where the Basic Law also called for "striving for a balanced budget and avoiding deficits," the new Chief Executive, He Yicheng, did not deny that there would be a deficit budget this year. However, the current Financial Secretary, Chen Maobo, has repeatedly expressed concern about the fiscal deficit. Many opinions have turned the fiscal deficit into the beginning of the decline of Hong Kong, but how does it compare to the situation in other countries and regions around the world?

Deficit budgets are not uncommon

The Hong Kong government has indeed not had a fiscal deficit for 15 years, so the news will inevitably attract attention as soon as it comes out, but in fact, deficit budgets are not uncommon in countries around the world. According to the American Heritage Foundation's 2019 Annual Economic Freedom Index Annual Report, there are actually only 22 countries and regions that have been able to maintain an average surplus in the global budget over the past three years, while the rest have 157 countries and regions with data showing deficit budgets. More than seven times the number.

Table 1. Proportion of budget surplus / deficit of GDP in free economy countries / regions

Since this ranking has consistently rated Hong Kong as the world's freest economy, it has been accused from time to time of being conservative and leaning towards small governments. Nevertheless, among the countries and regions selected as the top ten free economies in the world, over half of the budget deficits have been averaged over the past three years. They include Australia, Ireland, the United Kingdom, Canada, the United Arab Emirates and Taiwan. Even conservative conservative think tanks like the Heritage Foundation of the United States have not completely rejected deficit budgets.

Choi cannot sustain earnings

Further analyzing the relevant statistics of the 2019 economic freedom index annual report, Hong Kong's fiscal surplus as a proportion of GDP ranks eighth with Kuwait among the surplus budget countries and regions. As for the higher surplus, Kiribati , Macau, Micronesia, Norway, Iceland, Singapore and Dominica, followed by Hong Kong and Kuwait by Luxembourg. Examining the data of these 10 countries and regions helps us to identify the problems underlying the long-term fiscal surplus in Hong Kong.

Table 2. Proportion of Public Finance Projects in GDP of Surplus Budget Countries / Regions

In general, countries and regions outside Hong Kong have their own means of maintaining surpluses. Kiribati and Micronesia are small Pacific island nations with a per capita GDP of less than 4,000 US dollars. They can support higher government expenditure in a proportion close to Hong Kong's tax revenue, mainly by receiving international economic assistance; the budgets of Norway and Iceland The surplus is very similar to that of Hong Kong, but its government taxes and expenditures account for more than twice the proportion of Hong Kong's GDP. It can be seen that they rely on heavy taxes to make surplus budgets.

As for Singapore and Dominica, both countries maintain their book surpluses through a large amount of debt, and public debt has accounted for more than 80% of GDP. Kuwait, which ranks the same as Hong Kong, is like the late professor of public policy at the University of Illinois Stuart S. Nagel, editor of the Handbook of Global Economic Policy, points out that the government has achieved a low tax surplus on the basis that the government owns most of the country's fuel resources and oil production facilities.

In the second place, Macau ’s public expenditure and debt as a proportion of GDP are basically the same as Hong Kong ’s. However, it uses the gaming industry to obtain a GDP per capita of more than US $ 100,000, but it still needs to cooperate with a higher taxation ratio. Only to achieve a much brighter surplus figure than Hong Kong. Luxembourg, whose GDP per capita is at the same level as Macau, has a heavier public expenditure burden, so even with more debt and taxes, the proportion of budget surpluses is still lower than Hong Kong.

Looking back at Hong Kong, we certainly do not have any reason to accept international economic assistance. However, the government has no intention to increase taxes or public debt, nor does it have the golden eggs of the oil industry or gambling industry. Instead, it blindly uses the real estate, property market and other assets to multiply. Means to maintain the surplus, when things go wrong, then transfer funds on the books, cover up losses in an attempt to deceive themselves. Just as Chen Maobo said last year, the budget deduction of the fund back to the previous year was already a deficit budget, but many Hong Kong people, including officials, were afraid to face this fact.

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