[Budget] Deficit crisis comes back to Hong Kong

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Written by: Guo Wende

2020-02-24 19:00

On the eve of the 2020/21 Budget, the Financial Secretary, Chen Maobo, predicted that a fiscal deficit would occur this year, and the amount of losses involved may be the highest in years, and hinted that he would review the attitude of increasing spending in the past three years. It is true that public financial expenditure cannot be separated from the government's affordability and local economic performance. However, while the deficit budget is unavoidable, in addition to reviewing whether it can reduce costs and rebuild the balance of payments, it is more important to recognize that it should be clear Where to put public financial resources.

As early as 2014, the Long Term Financial Planning Working Group published the first work report to assess the "fiscal sustainability" of Hong Kong's public finances. Its main conclusion is that it expects a structural deficit in Hong Kong in the future and gives control over the growth of expenditure. Suggestions such as broadening the income base, establishing a savings plan, handling operating and non-operating accounts separately, clarifying the scope of fiscal reserves, and strengthening government asset management. Unfortunately, the SAR government has high fiscal reserves, and the local economy is still under development. Most Hong Kong people have refused to face up to the warnings raised by the working group in the report, and some have even criticized various related estimates for being too conservative and misleading ... Who would have thought that after only six years, the fiscal deficit crisis had really returned to Hong Kong?

In the face of this year's fiscal deficit, Hong Kong should undoubtedly also be seen as an opportunity to test its public finance strategy and strive to find ways to prevent it from turning into a structural deficit. (Profile picture / Photo by Luo Junhao)

If a public finance deficit is like a person's bloodshed, then a structural deficit can be deadly. Bleeding due to an accidental injury, as long as it is handled properly and does not endanger life, it is more likely that due to timely inspection, other diseases can be detected and escaped. In addition to blood transfusion and hemostasis, sometimes for conditioning, diagnosis or treatment, it may even require Deliberate bleeding. In the face of the fiscal deficit this year, Hong Kong should undoubtedly be seen as an opportunity to test its public finance strategy and seek to find ways to prevent it from turning into a structural deficit. Of course, principal officials must find ways to increase revenue and reduce expenditures. To continue to invest resources, it is not necessary to tabulate the deficit budget. Instead, it should be bold to increase public financial expenditure.

Fortunately, Hong Kong's deficit this year is obviously related to events such as the Anti-Amendment Movement, the Sino-US trade war, and the new pneumonia epidemic, so it is still not a structural deficit, and it is still possible to rebuild the balance of payments financially. However, the reason public finance differs from private finance is precisely because it cannot only look at "fiscal sustainability." The difference between the financial profit and loss of a private company is high or low, and it will not affect others who have nothing to do with it. In contrast, if you only look at the "financial sustainability" of the public financial leave, it is easy to ignore the real people's livelihood issues. The undertaking government should never take this path. To deal with this fiscal deficit, the SAR Government must consider not only "fiscal sustainability" but also social, economic and other aspects of sustainability.

Expenditure ratio has been low for years

Article 107 of the Basic Law stipulates that "The fiscal budget of the Hong Kong Special Administrative Region is based on the principle of spending within its means, and strives to balance revenue and expenditure, avoid deficits, and adapt to the growth rate of GDP." Concerned. The SAR government was affected by various factors at the beginning of the year. The public expenditure budget was still aggressive, and in 2002/03, the "Budget" reached the "peak" of 22.9% of GDP. However, also during this year, the then Financial Secretary, Liang Jinsong, clearly set the goal of "controlling public expenditure to 20% or less of the economy". Tang Yingnian and Zeng Junhua, who succeeded him, also successively stated that they would comply with this. direction. This habit has been inherited for many years, so that the outside world has also set the goal of 20% as an iron rule. Like the current director Chen Maobo's recent Budget, the mid-term forecast has slightly raised the public expenditure to 21% or more. These people were lashed for charges of weakening fiscal discipline and violating the Basic Law.

Looking at the 22 "Budgets" (Table 1) since the reunification, the average value of the original public expenditure as a proportion of GDP was 20.7%; it was calculated separately according to the previous period of the Financial Secretary, and the average value during the Tsang Yam-kuen period It was 20.9%, the average value during the Liang Jinsong period was 22.6%, the average value during the Tang Yingnian period was 19.6%, the average value during the Zeng Junhua period was 20.4%, and the average value during the Chen Maobo period was 21.6%. In addition, there are comments in the forum that the SAR government tends to overestimate future expenditure. After comparing the two sets of original budgets and revised budgets over the years, it can be found that in the 21 financial years before 2019/20, there were indeed 14 times, that is, two-thirds of the period. The proportion of public expenditure in the GDP of the original budget was higher than that of the revised budget, and the average difference between the two was about 1.2 percentage points. On the whole, the trend of Hong Kong's fiscal budget is to gradually reduce the proportion of GDP after setting the 20% target. It will not be pulled up under the name of "new philosophy of financial management" until the current government comes to power. There is still some distance.

(Hong Kong 01 drawing)

Although Hong Kong's budget has started to increase the proportion of public expenditure in recent years, its actual proportion is still far below the average level of countries or regions around the world. According to the "Economic Freedom Index" report of the American Think Tank Heritage Foundation, only the world ’s top 20 freest economies are Taiwan and Singapore. Government expenditure in the past three years has been slightly lower than Hong Kong ’s GDP. The other 17 countries and Regional government expenditures account for more than 25% (Table 2). In addition, among the 182 countries and regions that provided relevant information, their average and median government expenditure as a percentage of GDP in the past three years were 33.9% and 32.4%, respectively, and there were 169 countries and regions Government expenditure accounts for 17.9% of Hong Kong's higher than or equal to Hong Kong. Except for Taiwan and Singapore mentioned above, only Indonesia, Madagascar, Chad, Democratic Republic of Congo, Central Africa, Bangladesh, Nigeria and Sudan are the only figures lower than Hong Kong.

(Hong Kong 01 drawing)

Bailout sugar is hard to last

Due to the low proportion of budget expenditure, the SAR Government has put a lot of resources on short-term relief measures in recent years. Take the past year as an example. In the previous Budget, the government originally proposed a one-time relief measure of up to 42.9 billion yuan, which cost about 8.4% of the government expenditure of 508.7 billion yuan in 2019/20. In response to the conflict of social movements, three similar measures were launched from August to December last year, totaling approximately 23.1 billion yuan. As of last Friday (February 21), the special meeting of the Finance Committee of the Legislative Council approved 30 billion yuan of "anti-epidemic The emergency funding for the Epidemic Fund is still a short-term relief measure. The above-mentioned short-term relief measures totaling 98 billion yuan have cost nearly one-fifth of the total government expenditure budget for the whole year. However, the use is actually limited to assisting some members of the community to overcome the current difficulties. After the event, they will not affect Hong Kong public. How much sustained benefit the fiscal or overall economy brings.

Compared with the one-off relief measures that simply solve the urgent need, the multiplier effect of direct “distribution” arrangements such as cash deposits, consumer coupons, or tax refunds may be greater, because the relevant public resources are directly invested in stimulating the market. Consumption, while the vast majority of citizens can obtain greater satisfaction, will also encourage manufacturers to increase supply and production, barely claiming a certain long-term economic benefits. However, "sweet sugar" is still a short-sighted policy in essence. Unless Hong Kong has the ability to convert "sweet sugar" into a permanent measure like Macau's implementation of the "cash sharing plan", we cannot expect that "sweet sugar" will affect Hong Kong society. Contributing to sustainable development; Moreover, if the "pie distribution" is not handled well, it may be possible to reappear the farce that wasted the administrative costs of "patch-ups" last year.

If the "pie delivery" is not handled well, it is possible to reappear the farce that the "Caring and Sharing Plan" made up for in the past year and wasted administrative costs. (Profile picture / Photo by Lin Ruoqin)

Affected by the current social movement conflict and the new pneumonia epidemic, there are probably not many people in the society who oppose the new "Budget" for the time being to follow or even expand the above guidelines. However, the Hong Kong Government is facing the pressure of huge fiscal deficits while meeting The dilemma of the people's bailout and the call for "sweet sugar" just shows that continued abuse of such policies is not a long-term solution. In the past, Hong Kong enjoyed the good conditions of good economic performance and abundant fiscal reserves. In addition, it has never experienced various unexpected unexpected expenses like in the past year. There is still room for the government to make some short-term waste. Five years later, Hong Kong's deficit crisis has again emerged, which clearly indicates that the public finance problem has reached a critical point. Therefore, officials can no longer just use the shallow attitude of "headache and foot pain," and must step out of the "careful financial management" In the comfort zone, you should think carefully about how to use the public financial resources to cope with the increasingly complex social problems in Hong Kong.

The future of investment is incumbent

A responsible Budget should invest local prospects with public financial resources, and the primary task is undoubtedly to improve the quality of life of citizens, and the priority must be placed before economic development and the so-called "fiscal sustainability", such as The shortage of local registered doctors, which is becoming more and more concerned, is actually not difficult to solve from a financial perspective: At present, there are about 500 students admitted to the Hong Kong Medical Degree Program each year, and the average student unit cost is about 600,000 yuan, even if Multiplying the number of medical students will only bring about an additional expenditure of about 1.8 billion yuan. This is clearly an affordable amount for the Hong Kong public financial system that spends tens of billions of dollars to "support enterprises and protect employment". The benefits are by no means measurable. If the budget is more aggressive, you can also consider the establishment of the "Public Housing Development Fund" suggested by the former Secretary for Transport and Housing, Zhang Bingliang, and even formulate long-term plans to buy back MTR and lead exhibitions such as privatized by previous governments. People's livelihood enterprises.

In addition to alleviating the current difficulties of the people, a responsible government must also plan for the future of society. (Profile picture / Photo by Luo Junhao)

Another area where public expenditure is urgently needed is the higher education sector. Under the influence of the Anti-Amendment Movement last year, the operation of tertiary institutions has been severely impacted, and some campus facilities have been damaged by outsiders. By the new pneumonia epidemic this year, many teaching and research activities have been cancelled or interrupted. In order to maintain the leading position of local universities in the international rankings For this important advantage, the government needs to increase the resources allocated to higher education, improve the treatment of faculty and research staff. "Hong Kong 01" has always advocated the "eight major tuition waiver and graduation without school debt" initiative also belongs to this field, and it is also financially feasible: from the 2013/14 school year to the 2018/19 school year, the total funding for university bachelor's degree programs The average tuition fee is about 3.486 billion yuan per year. On average, about 2.366 billion yuan in loans and bursaries are disbursed each year under the "Funded Student Funding Scheme" and "Financing Student Funding Scheme." Free university education can be implemented with an increase of about 1.119 billion yuan.

Finally, as mentioned earlier, short-term bail-outs and "sugar distribution" measures ignore the future, and the use of public financial resources to help stimulate the economy also requires a long-term vision to ensure that local advantageous industries can develop in a big way. For example, the innovative technology industry that was once listed in one of the "six advantageous industries". In recent years, the government has often given tax deductions, but the tax burden itself is a matter of profit for the company. Start-ups have not benefited directly; as for some funding funds provided by the government, not only are they subject to strict approval conditions, but also object-oriented or small and medium-sized enterprises that have overcome the problem of early fund-raising and are on track. Some of these projects use similar "instalment payments". It will be difficult to really help entrepreneurs who lack capital, so how can we talk about sustainable development? After all, what we are talking about is "investing" in the future, and this investment also bears risks. Why do all officials resist the burden of risks and dare not invest with confidence?

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The above excerpt is from the 202nd issue of the Hong Kong 01 weekly report (February 24, 2020), "The budget is not just for fiscal revenue and expenditure, but also for expenditure."

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