Surplus fund misspent adds to wealth embarrassment
Our bureaucrats have a way of waiting for quiet holidays, when no-one is paying attention, to make announcements of embarrassing news.
And, sure enough, December 27 and 28 did service. On the first of these two days, the government announced an accruals-based fiscal surplus of HK$124.9 billion for the last fiscal year and, on the second, it announced a cash accounts fiscal surplus of HK$32.4 billion for November alone.
These are embarrassing news items because they reveal government has lost control of its accounts. You would recognise this immediately if these were figures for deficits, but it is just as true for surpluses. Missing your budget by a huge margin on either side says you did a poor job of budgeting.
Accruals accounts, which the government has now published for five years, are accounts done corporate style, with revenue matched to related expenditure. They provide a more accurate picture than the simple cash accounts that the government has always employed.
In particular, these government accruals accounts are superior to the cash accounts in that they include the Exchange Fund, the Housing Authority and other government enterprises such as the MTR Corp, while also offering more comprehensive disclosures of fixed assets, provisions for pensions and government debts.
The first chart gives you the picture of our present fiscal position with the red line at the bottom showing a 12-month rolling total of the fiscal balance on the cash accounts.
That figure as of November was HK$112.8 billion, a historic record high both in absolute terms and relative to the size of the economy. To put it in further perspective, it amounts to half of what the government spent in total over those 12 months. See if you can find any other place where this happened in modern times.
The true final figure is even greater, however. The blue line shows you a 12-month rolling total of what the accruals accounts say the fiscal balance was over the last five years and this has obviously been consistently better than on the cash accounts. If the relationship between accruals and cash had remained consistent since the March 2007 fiscal year-end, then the 12-month rolling total of the surplus on the accruals accounts would be now more than HK$170 billion.
To give you a picture of how ludicrously out of scale such numbers are, look at the second chart. The two red bars represent the 12-month rolling total of the accruals and cash fiscal surpluses until November while the blue bars show you the total income from several revenue sources in the last fiscal year.
The accruals surplus now would be the equivalent of all revenue last year from corporate profit tax, personal salaries tax, land premiums, rates and stamp duties on share transactions. It would be enough to cover 4? years of revenue from salaries tax.
Look at it another way. Past fiscal surpluses and investment earnings on these surpluses have given us public savings of more than HK$1 trillion, and this figure excludes all funds needed to maintain the peg to the US dollar. It comes to more than HK$150,000 for every member of the population.
The investment income from this treasure hoard is easily enough to supplant salaries tax. Hong Kong could be the first jurisdiction in the world to abolish personal income tax. Just think of how that could make the rest of the world sit up and take notice.
But will we do it? Will we do anything notable at all with this embarrassment of wealth?
Nahh, forget it. We will waste it on infrastructure construction that we don't need, on social programmes for the already overly mollycoddled and on foreign reserve accumulation to fund the military adventures of the United States.
To my mind, this will be an even greater embarrassment than being so far off-base in the budgeting process.