No debate on Donald's grasp on public finances: he got it wrong
with Jake van der Kamp
'Alan [Leong] clearly couldn't tell the difference that the government has to make when it comes to public finances. HK$910 billion, I believe, refers to the foreign reserves. The foreign reserves and the government's recurring/usable surplus are two different matters. The foreign reserve is for securing the Hong Kong dollar. It belongs to Hong Kong and the note-issuing banks. It does not belong to the HKSAR government and the government cannot use it however it wishes. Mr Leong had better read the regulations to get a better understanding.'
Donald Tsang Yam-kuen,
Chief executive debate transcript,
JUST WHO NEEDS to get a better understanding here? Who couldn't tell the difference when it comes to public finances?
Chief executive candidate Alan Leong Kah-kit was entirely right in saying during this debate that our government's net assets exceed HK$910 billion. It was rather our Donald who displayed himself as out of touch with the government accounts and on more than one count alone.
That HK$910 billion figure comes from the government's accruals accounts for the year to March last year. You can see it at the bottom of the first table as the figure for net assets in the government's consolidated statement of financial position.
Accruals accounts are the way that private corporations keep their books. They constitute a much more accurate method of accounting than the cash accounts our government has traditionally employed as they match expenditures with revenues and take more assets and liabilities into account, which is why the Treasury now publishes annual accruals as well as cash accounts. For instance, notice from the first table that the accruals accounts contain a provision for civil service pension liabilities, which the cash accounts do not, and also set a value on government fixed assets.
Let us thus have it understood that Donald must have been entirely at sea when he said during the debate that: 'HK$910 billion, I believe, refers to the foreign reserves'. No, Sir, try again. It has been some years since you were financial secretary and perhaps you haven't heard about these accruals accounts. Perhaps you had better read up on them.
The figure for foreign reserves is actually the first one on the second table, HK$1,066 trillion. This comes from the Exchange Fund's balance sheet and, along with some Hong Kong dollar holdings, gives the fund total assets of HK$1,228 billion. But not all of this money can be considered as the net savings of our government, clear of any other encumbrances. Some of the money is owed to others, for instance HK$159.5 billion in backing for the banknote issues. It is owed to you and me individually to the extent of the banknotes we carry in our wallets rather than to the general public.
Donald obviously got this one mixed up, too. Only a small portion of our foreign reserves, that element called 'banknotes' in the table, is required for securing the Hong Kong dollar. In fact, if you start using any more of our foreign reserves than this element alone in order to secure the Hong Kong dollar, then you break the rules of the monetary arrangement we refer to as the Peg and you invite foreign speculators to put our currency on their attack list. If our purpose is to define net government savings, money that we can say the public purse holds with no strings attached, then the closest we can come is to add two items from this second table.
The first is 'fiscal reserves', government deposits with the fund, mostly built up from past fiscal surpluses. The second is 'accumulated surplus', the investment gains the fund has made over time. Together these two items amount to HK$874.2 billion. This is the equivalent of HK$376,509 per domestic household and is a powerful lot of money, which is the reason Mr Leong suggested that we may already have enough savings and need not be so gung ho about building up yet more.
But before making this point he apparently must first educate a former financial secretary on the make-up of our financial position. Ain't life strange sometimes?