The Hong Kong government should no longer overestimate the deficit and avoid tax increases

This Sunday (November 7), the Financial Secretary Chen Maobo published an essay on his blog stating that he is "preparing to start consulting work on the next year’s budget", and pointed out that this year’s fiscal deficit can be "far lower than at the beginning of the year." "Estimation", but the main benefit comes from non-current account items such as land income, and there is still a situation of insufficient income in the current account.

On the other hand, he also proposed that the future financing and use of public resources should consider several factors, including giving citizens a sense of gain, promoting "common prosperity" and "resolving the deep-seated housing and disparity between the rich and the poor."

Article 107 of the Basic Law stipulates that “the Hong Kong Special Administrative Region’s fiscal budget is based on the principle of keeping expenditure within the limits of income, striving to balance revenue and expenditure, avoiding deficits, and commensurate with the growth rate of GDP.” In the 23 fiscal years that have passed since the reunification. , Hong Kong has only experienced deficits in eight fiscal years, which are 1998-1999, 2000-2005, and 2019-2021.

The opening balance of the SAR government at the end of March 1997 was 370.677 billion Hong Kong dollars, and the ending balance at the end of September this year was 812.058 billion Hong Kong dollars. The difference between the two was 441.381 billion Hong Kong dollars.

Overestimation of the fiscal deficit has a history

The underestimation of revenue and overestimation of expenditures by the SAR government in the budget is nothing new. For example, the actual surplus of the government's comprehensive expenditures from 2005 to 2019 was only one year, which was not higher than the budget of the year. The most exaggerated year was The initial consolidated surplus budget for the 2017-2018 fiscal year was HK$16.288 billion, which was HK$148.974 billion, which was more than nine times the budgeted amount after settlement.

In addition, the Hong Kong government originally predicted a fiscal deficit between 2008 and 2014, but the government's comprehensive expenditure has finally shown a surplus before the repayment of bonds and bills has been included.

As for Hong Kong’s high deficits in the past two years, as Chen Maobo said, it is mainly because "In response to the epidemic and economic downturn in the past two years, we have adopted very strong countercyclical measures to slow down the economic downturn on the public and the economy. The pressure brought by the enterprise".

The financial pressure generated by the relevant measures will logically disappear after the epidemic is over, and in this case, the non-current account can still maintain considerable income.

According to the logic of the division of accounts proposed by the Secretary, they are also "difficult to be used as an effective indicator for predicting the next year's figures" just like the land income situation, and should not be used to explain the forecast of the fiscal deficit.

Broaden the tax base to support current expenses

As for the Chief Secretary's claim that the recurrent expenditure of the Hong Kong Government in recent years has not risen as much as its income, it may not be entirely accurate if the observation period is extended.

Taking education as an example, blogs claim that government-related recurrent expenditure has increased by 25% in the past five years, while data from the Census and Statistics Department and the Treasury show that the general income account and the operating income of various funds have increased by 11.6% is indeed worrying on the surface. However, if the calculation period is extended to the period from 1998 to 2021, it will be found that government operating income has increased by nearly 160% during the 23 years. Compare it with the current education expenditure in the revised budget last year. 137.2% of it is high.

Moreover, regarding the financial situation of the current account, Chen Maobo’s blog has clearly pointed out the important issue of "Hong Kong’s narrow tax base," but he immediately focused on the small number of beneficiaries of tax refunds and rates refunds, even This involves the implementation of every non-recurring "sugar delivery" project to consider the "broadness of coverage" and "fairness", rather than inferring from normal logic how to broaden Hong Kong's tax base in order to continue to maintain these assistance measures.

This kind of statement inevitably makes people think that he is simply trying to find an excuse to cut related expenses, but he has not made a good plan for how to increase fiscal revenue in the long run.

In his budget speeches in the past two years, Chen Maobo said that he would “consider opening up new sources of income or adjusting tax rates.” However, the only relevant measure during this period was actually to increase the stamp duty rate on stocks. Recommendations on taxes, capital gains tax, and progressive profits tax have fallen on deaf ears, especially when the international community’s work on the “lowest global tax rate” has made significant progress this month, and the advantage of low taxes in attracting foreign investment will soon disappear.

If local financial officials do not want to let their ideals such as "common prosperity" stay at the level of wisdom, how long will they evade the issue of broadening the tax base?

Treasury talked about concepts and thoughts, but he revealed that it is short. Hong Kong must have its own real estate tax reform. It is lack of courage to abandon the "first-hand property vacancy tax".