Budget should focus on jobs and the needy
When Financial Secretary John Tsang Chun-wah delivered his maiden budget last year, the government was sitting on a huge cash pile, and it went on a spending spree with something for everyone. The current economic crisis was just a cloud on the horizon. Now, everyone anticipates an economic slowdown and rising unemployment. As revealed today by an SCMP/TNS survey, business and opinion leaders say the priority should be measures to soften the impact on society, such as a stimulus package, job creation and tax relief.
The economic crisis has yet to bite as deeply in Hong Kong as it has elsewhere. The budget is a chance to put the right policy responses in place. A snapshot of the economy shows that despite warning signs such as deteriorating business confidence and layoffs, Hong Kong people generally are not finding it too tough. To be sure, many have lost money on the stock market and in toxic bonds. The property bubble, however, was not too serious. Bank savings show Hong Kong people still have a lot of money but they are not spending it. Rather, given the deep uncertainty in the international economic environment, they are gearing up for a prolonged recession.
That is not a scenario for growth that will provide employment for the next wave of new young job seekers and people laid off. It is the government that will have to spend to soften the contraction. Mr Tsang should, therefore, focus on measures that will create jobs. That calls for prudent ways of financing them, given that recurrent revenues are falling in the economic downturn. Luckily, however, we still have strong fiscal reserves built up over the years. We should be able to cope with short-term budget deficits to help ease bad times. Indeed, the SCMP/TNS survey shows business and opinion leaders are relaxed about such deficits in current circumstances.
So it is good to see a government source saying that instead of cash handouts from revenue, the budget focus will be on initiatives to create job opportunities for needy people. The financial secretary is expected to reveal more initiatives, like the 12,500 or more internships and jobs announced by the administration last month. The government is also considering subsidies for companies to hire graduates as interns, and helping tertiary institutions absorb graduates as tutors, research fellows and post-graduate students. These moves would be welcome, along with the fast-tracking of large projects and initiatives such as grants for the renovation of old residential buildings, which should create jobs for thousands of idle construction and decorating workers.
The case for tax relief to counter the downturn is not so convincing. In a deflationary environment, taxpayers with jobs are the lucky ones. Tax relief such as raising the basic allowance would therefore be misplaced. It is people who have lost their jobs or face unemployment who need help. Moreover, the tax base is already quite small and there is a need to maintain revenue. There may be room for a tax rebate, though smaller than Mr Tsang gave last year. But the focus should be on measures to create jobs and to help those who are poor but not destitute enough to qualify for social security.
Interestingly, more than half of local opinion and business leaders think the government should issue bonds to raise cash to finance development. Hong Kong is fortunate to be sitting on big reserves without long-term loan commitments. That leaves the government in a strong position to tap this source of funds prudently to speed up spending on job-creating infrastructure projects.