Spending plan points in right direction
John Lydgate, an English poet writing in about 1400, is quoted as saying: “You can please some of the people all of the time, you can please all of the people some of the time, but you cannot please all of the people all of the time.” This aphorism remains true today.
Financial Secretary Paul Chan Mo-po, in his budget speech, was clearly trying to please all of the people, and he did it rather well. Whether he can do it all of the time depends not just on factors outside his control, such as United States interest rates, but also on how far the government will go in dealing with structural problems that lie near the surface of Hong Kong’s prosperity.
Many governments around the world are no doubt green with envy when they read — yet again — that the Hong Kong government ended the financial year with a budget surplus far higher than forecast a year earlier. This is a problem, they might say, far preferable to the much more common one of trying to find scraps of cash to fill a deficit hole.
In other parts of the developed world, governments have tried to reduce the proportion of GDP they spend but few have succeeded in cutting this to the 20 percent or so that is normal in Hong Kong (Japan spends 42 percent, South Korea 30 percent, the United Kingdom 49 percent, US 36 percent — but Singapore just 17 percent).
As I mentioned on Tuesday in these pages, and confirmed in the budget speech, Hong Kong people now enjoy GDP per head of $46,000, higher than in economies such as the UK.
So the pre-budget discussion in recent days has been on how Chan should use the surplus. Should he be cautious, letting the city’s massive reserves build further, thereby avoiding financial commitments it might be difficult to sustain when, as is inevitable, the weather turns nasty a few years from now?
Most commentators have advised against this, some suggesting the money be returned to the public, who know better than the government how to spend it, or have suggested it be invested in measures that underpin long-term economic development.
Chan is clearly a good listener. His speech reflects a sensitivity to advice from many quarters. As happened last year, Chan would, he said, share “with the community about 40 percent of the projected annual surplus” and use the remainder “for improving services and investing in the future”.
This, he says, reflects the “new fiscal philosophy” put forward by Chief Executive Carrie Lam Cheng Yuet-ngor, which “envisages that on the premise of ensuring the health of our public finance, the government should adopt forwardlooking and strategic financial management principles in optimizing the use of surplus to invest for Hong Kong and relieve our people’s burdens”.
There are therefore goodies in this budget for almost everybody. While some money is to be handed back to taxpayers, the emphasis is on increased government spending on measures to facilitate development broadly across economic sectors and to expand public provision in education and healthcare.
I will not comment further on the individual elements of the budget in this article, both because of a lack of space and also because it is a variegated and detailed set of proposals and promises that deserves proper consideration at length. I can, though, let you have my initial reactions, for what they are worth.
In my pre-budget article, I recommended that Chan use the surplus — and some of Hong Kong’s huge budgetary reserves — to invest in Hong Kong’s future. From my first reading of his speech I get the firm impression that this is what he has done. So if you are hearing the sound of clapping, then yes, that is my applause.
You also know that economics is “the dismal science” and that I am an economist, so you are probably expecting a “but”. And you are right.
One budget cannot fix the underlying problems of the Hong Kong economy. The financial secretary was absolutely right in identifying these as being the housing affordability crisis and labor and skills shortages. Both are the result of structural factors that require policy responses stretching beyond an annual budget.
As Chan noted, the increase in supply of housing units, together with prospective interest rate rises in the US, will slow the rise in the price of apartments. And the measures he announced to study ways of releasing more government land for housing are most welcome.
But in the meantime it is astonishing and disgraceful that more than 200,000 people still live in “coffin cubicles” and the like, and no prospect of the problem being solved, as it should be in any civilized society, in short order.
And the housing crisis is linked to the labor shortage; if businesses are to import skilled labor, where will the immigrants live?
One of the most hopeful features of the budget speech was the announcement of a task force on land supply that will launch a public engagement exercise in the first half of this year to discuss with all sectors of the community the options and priorities for increasing land supply. And it is good to see that this task force will have to submit recommendations to the government by the end of this year.
Let us hope that this, and the other policy study initiatives in the budget, will succeed and bear fruit in the years to come.