Chan demonstrated smart use of surplus

Finance chief wise to resist calls for ‘sweetener’ cash handouts to public, in favor of payouts targeted at development and social needs, notes

Financial Secretary Paul Chan Mo-po released the first budget of the current-term government on Wednesday. There were widespread expectations for a remarkably generous budget and hence substantial “red packets” from Chan to all permanent residents, so the budget was eagerly awaited by the public. Finally, the good news was confirmed; the surplus turned out to be as much as HK$138 billion.

Then the question is how to use such a massive surplus? One way is to spend it on cash handouts. Undoubtedly, it is a “smart” way in the political sense to boost personal popularity, which is especially beneficial to Chan. Indeed, the question is a test to assess whether he is a good financial secretary. “To do or not to do, that is the question.” Chan made a smart decision to reject the cash handout idea. Some supporters of cash handouts may point to the giveaways in Macao. However, we should note that there is a critical difference between the two cities. Hong Kong’s surplus came mainly from buoyant asset markets, which can be highly volatile; any market downturn will put revenue and the fiscal position under pressure. The side-effect of cash handouts is that the public will become addicted to the sweetener. When the government fails to satisfy their wants next time, there will be the negative consequences. Moreover, the surplus is a valuable public resource. Making use of the funds to win popular support is just like cutting a large thong of another man’s leather.

As mentioned above, cash handouts are not a good way to use the massive surplus but the question remains. The answer provided by Chan is revealed at the beginning of his speech. He said the initiatives put forward in this budget are underpinned by three main objectives: diversified economy, investing for the future and caring and sharing.

Indeed, the public expectations of cash handouts are met by what he termed as “caring and sharing”. A package of relief measures is introduced to meet the needs of different social groups. The package includes such relief measures as tax incentives for the middle class, a cash subsidy of HK$2,000 for students from grassroots families, a rates waiver and more allowances for welfare recipients, including subsidies for the elderly. It is noteworthy that the package would account for nearly 40 percent of the surplus, which is more than the usual allocation of 30 percent in previous years.

While the relief measures show the government’s sincerity to share with society, the social investment measures explain the government’s strategy. For economic development, Chan stressed the development of the innovation and technology and financial-service industry. Support for innovation and technology is multi-faceted, including tax incentives and investment of an additional HK$50 billion in hardware development funds and research clusters. The all-round support is necessary as the innovation and technology is still an infant and needs a favorable environment to grow. However, the strategy on the financial-service industry is much more specific as Hong Kong already has a strong base in this field. The government smartly focuses on developing the previously relatively minor bond market.

For social investment, Chan spent money on long-term social needs, especially medical and elderly care. The most eye-catching is that he has invited the Hospital Authority to start the second 10-year hospital development plan instead of waiting for the mid-term review of the first 10-year plan to be conducted in 2021. That means, other than the promised HK$200 billion spent on the first 10-year hospital development plan, another HK$300 billion would be reserved to support the second 10-year hospital development plan, improve clinic facilities and upgrade and increase healthcare teaching facilities.

Jacob Lew, the United States’ former secretary of the treasury, shared his experience: “The budget is not just a collection of numbers, but an expression of our values and aspirations.” Chan expressed his values clearly in his budget that both short-term and long-term needs should be addressed, and public funds should be spent smartly.