Financial Secretary John Tsang Chun-wah's 2009-10 budget next month will be his second and perhaps most important, as the financial tsunami's impact on Hong Kong intensifies. There will no doubt be many suggestions from the public on where money should be spent, but one area requires contraction rather than expansion - the government itself.
Given the decline in revenue and increase in expenditure, the government is likely to incur a substantial deficit this year. Measures to speed up its infrastructure projects and revive the economy will increase the deficit, probably to HK$100 billion or more in the next few years. There is also little scope to increase revenue. But the financial secretary should at least adhere to the principle of 'small government' and learn some lessons from the last crisis.
In fact, in presenting last year's budget, Mr Tsang praised leaders at the time of the Asian financial crisis and during the severe acute respiratory syndrome outbreak for taking unpopular measures to contain and reduce the swelling deficit. 'Such measures indeed laid the foundations for the subsequent return to sound government finances a few years later,' he said.
One internally unpopular measure was to make the civil service leaner. As secretary for the civil service, I was given the task of reducing its size, from nearly 200,000 in 2000 to about 160,000 by 2006-07. The target was achieved through two rounds of voluntary retirement schemes and freezing recruitment. This also helped make the government more efficient, as evidenced by the fact that most civil servants now work a five-day week, without a corresponding increase in the establishment.
During the same period, the government reduced civil service salaries three times, to their 1997 level, to take account of falling private-sector wages. This measure was strongly resented by civil service unions, which organised public demonstrations and challenged the legality of the salary reduction. Ultimately, the Court of Final Appeal ruled for the government. These two measures helped save tens of billions of dollars of recurrent expenditure and, in Mr Tsang's words, 'laid the foundation for the subsequent return to sound government finances'.
It may be too early to anticipate the possibility of a reduction in civil service pay. But there is certainly room to reform the civil service system and make it more cost-effective and efficient. The Hong Kong civil service is a centralised system comprising more than 400 different grades with over 1,000 ranks. The grading structure is based on the 19th-century model of one profession per skill and does not allow internal movement of staff between grades, for a person's entire career. There is a case for amalgamating many existing civil service grades, to promote the development of multiple skills and facilitate the free flow of talent between jobs.
Turning to the ranking structure, a civil service grade has, on average, four to six ranks. Reducing the layers in the existing hierarchy would certainly speed up the workflow and improve the efficiency within government.
Furthermore, the existing policy is to recruit from the outside only for the lowest rank of any grade, while filling senior vacancies through internal promotions - except in very rare cases. This highly protective and outdated practice does not allow the government to bring in senior people from the private sector to broaden the expertise of the civil service.
Reforming the civil service is never easy. The government started restructuring in 1999, following the Asian financial crisis. But the tasks of reducing the size and salaries, as well as modernising various fringe benefits, led to major confrontations with the unions. As a result, the administration of Tung Chee-hwa, myself included, had neither the time nor the energy to address the most fundamental reform issue - the multilayering and compartmentalisation of the civil service system.
There have been several salary increases in the past two years and the civil service is growing again. It is time to resume the reform process and address the outstanding systemic issues.
Hong Kong inherited its system from the British. But Britain - as well as Australia, New Zealand and Canada, whose systems were instituted by the British - have long since opened up their systems to make them more flexible. Our first-class civil service will not be sustainable if it does not keep pace with modern technology and practices.
The financial secretary concluded last year's budget speech by saying: 'We must be ready to face the realities and challenges of today.' We will see in his next budget whether he is ready to face the challenge of the bureaucracy.
Joseph Wong Wing-ping, formerly secretary for the civil service, is an adjunct professor at Chinese University of Hong Kong