The budget surplus game

PUBLISHED : Wednesday, 03 May, 2006, 12:00am
UPDATED : Wednesday, 03 May, 2006, 12:00am
 

It has become normal for the government to release bad news during long weekends, to minimise the backlash from holidaying politicians, the media and the community in general.


So it was a bit bewildering when, on Saturday, the government reported its $14 billion surplus for the 2005-2006 financial year.


This was nearly $10 billion higher than Financial Secretary Henry Tang Ying-yen's estimate in his budget of nearly two months ago.


Even before the budget speech, most experts were forecasting a surplus in the $10 billion to $15 billion range.


But officials dismissed those forecasts as overly optimistic and simplistic.


Now, the financial analysts have been proved right and the officials wrong. So what should have been a piece of good news - about the marked improvement in public finances - has ironically become yet another embarrassingly wrong estimate by bureaucrats.


On Saturday, Mr Tang put on a brave face as he tried to explain what went wrong.


He denied claims that the government had deliberately under-reported the surplus to deflect pressure for tax cuts.


Mr Tang maintained that he made his forecast after assessing revenue and expenditure in the most objective and professional manner.


Since the large surplus was widely predicted, it has not precipitated a political problem for the administration. While legislators have pressed the government for tax cuts, few people have expected immediate concessions.


The fallout may be limited to embarrassment on the part of officials, who have given critics more fodder. But the story of the budget surplus disappeared from newspaper headlines immediately after the initial reports.


That is because people are resigned to the reality that the budget is simply a tactical game the administration plays, according to calculations of political risks and gains.


Chief Executive Donald Tsang Yam-kuen made full use of the doom-and-gloom tactic when he was financial secretary.


After public expectations were dampened, even a modest package of concessions to the public was greeted with applause.


So, 'expectation management' has become a key part of the political agenda when it comes to the art of formulating a budget.


Mr Tang was hinting about tax relief for the current year shortly after he delivered last year's budget. By then, there were undisputable signs that Hong Kong would return to a balanced budget earlier than expected.


Weeks before his budget in February, he remained bullish about the possibility of major tax concessions.


So doubters can be forgiven for being cynical about the overly prudent approach adopted by Mr Tang in delivering tax cuts. Even more suspicion - about political motives behind this year's budget - will be aroused by the $10-billion underestimation of the surplus.


There is some truth to the suggestion that Mr Tsang's hopes of re-election in March next year have played a role in this year's budget. The administration's transition to an election-campaign footing has begun in earnest.


With more cash in the Treasury, Mr Tsang will have more room to improve people's livelihood - and finance new public services - in his October policy address. If the economy maintains its growth momentum, bigger tax concessions could be made in the next budget - boosting the feel-good mood during the election campaign.


If that turns out to be the case, it will give more credence to sceptics' claims about increased political tinkering with the budget.


But that may not matter: both the government and the people seem to view the long reach of politics in the budget-making process to be the order of the day - for better or worse.


Chris Yeung is the Post's editor-at-large


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