Budget needed to offer more than handouts
What is likely to be Financial Secretary Henry Tang Ying-yen's final budget had a populist, election-year feel to it. Flush with a staggering, HK$55 billion surplus, 10 times the amount he projected a year ago, Mr Tang doled out goodies - some HK$20 billion worth, with the have-nots and the have-less doing better than the haves. Few would quarrel with using some of our surplus for increased spending on early education, the elderly and victims of domestic violence. An extra month's benefits for those on social security will mean a lot for those in need.
Those in the bottom half of the society have not benefited as much from the surging economy as those at the top. Virtually eliminating the city's onerous stamp duty on flats selling for less than HK$2 million is a sound move. It's a nice gesture to flat owners who have not benefited from the big increase in property prices at the luxury end of the market.
Mr Tang made it clear that those who can afford to pay more should continue to do so. But his salaries tax cuts should help 1.1 million mostly middle-class taxpayers. Restoring the tax bands and the marginal rates to the levels last seen in 2002-03 goes part way towards repairing Hong Kong's reputation for simple, low taxes. It will also make it easier for Chief Executive Donald Tsang Yam-kuen to make good on his campaign pledge to cut the maximum corporate and personal rates.
Halving the wine duty to 40 per cent doesn't mean a lot in terms of money for the government but will reduce a serious anomaly in the city's low-tax regime. If retailers and restaurant owners pass on the savings, it will go some way towards improving our quality of life, for residents and tourists alike. Mr Tang's suggestion that he would be open to eliminating the tax in future was every bit as welcome.
But the budget falls short in some important respects. Some initiatives fly in the face of the government's repeated insistence that it believes in minimal government. Why the film industry alone should benefit from a HK$300 million loan fund is unclear. But it pales in comparison to the continued emphasis on big infrastructure projects. Justifying HK$29 billion in annual infrastructure spending by toting up the number of jobs pouring concrete strengthens the claim of those who argue that much of this spending is wasteful. Despite evidence that slowing population growth undercuts the rationale for some of these projects, there's no fresh thinking in this area.
Sadly, Mr Tang spent little time talking about surpluses. How much is enough? How should we manage the money we have? We are in the enviable position of having government reserves equal to 19 months of government spending. That excludes money in the Exchange Fund, which backs our currency's peg with the US dollar. Managing that money more effectively could pay big dividends. An extra 1 percentage point in the annual return on the fiscal reserves alone, estimated to reach HK$365 billion by March 31, would mean an extra HK$3 billion a year.
These shortcomings aside, Mr Tang has good reason to be satisfied. The stock market has quadrupled from its 2003 trough. The economy has grown on average 7.6 per cent a year for the past three years. Negative equity cases, those homeowners who owe more on their mortgages than their properties are worth, have plunged from more than 100,000 to just 8,400 at the close of 2006. Unemployment has fallen by almost half to 4.4 per cent and the number of jobless people on welfare has fallen by 14,000 from a high of 51,400 in 2003.
Mr Tang has benefited from the good fortune to be finance chief when the economy was rebounding from a trough. But he had the good sense to make the most of his luck. He kept spending in check, reducing operating expenditure to less than HK$200 billion for three years. He has brought government spending as a percentage of the economy down from 22 per cent to less than 17 per cent, well under his 20 per cent target. But he missed the chance presented by the economic good times to make bolder moves.