Financial secretary does not lack resources, only vision
I have to admit, I was wrong about the budget.
Although I didn't say so in print, in the run-up to yesterday's speech, I thought the government was trying to manage our expectations downward. I figured officials were deliberately talking down the prospects for an expansionary budget. That way, if Financial Secretary John Tsang Chun-wah did announce a few stimulative measures, the government would get the credit for coming up with a bold response to the economic downturn.
Obviously, I gave the government too much credit. Mr Tsang's budget yesterday was every bit as limp and listless as advertised, perhaps even more so.
The problem cannot be that officials fail to understand the severity of the slump. Yesterday, Mr Tsang warned that Hong Kong's economic output is likely to shrink between 2 and 3 per cent this year. Although some private-sector analysts expect a far sharper contraction, the government's figures are broadly in line with consensus forecasts.
Nor is the problem a lack of resources. With HK$493 billion in accumulated fiscal reserves, the government has a deep pot to dip into.
Mr Tsang's speech began well. 'At times such as this, we need farsightedness and courage,' he declared, pledging his main objective was to protect jobs.
Yet, when he got down to the nitty-gritty, there was a depressing lack of real substance to his budget. Indeed, at times the speech sounded as if his staff had had a nasty accident with a civil service random jargon generator, for example, when he promised 'we will adopt a positive approach and formulate specific and effective policies. In the process, the government will work more closely with the community and act as a more proactive market facilitator in economic development.' What piffle.
Mr Tsang's job-creation initiatives ranged from the potentially useful - HK$140 million to subsidise internships for 4,000 new graduates - to the downright bizarre - HK$63 million to teach students how to use the internet safely. Presumably he means not when operating heavy machinery or while making the tea in their new jobs as interns.
There were a few hoary old chestnuts as well. Mr Tsang waxed lyrical about wine - one of his favourite subjects - talking up 'Hong Kong's status as a regional hub for wine distribution and trading'. But with fine wine prices down 22 per cent in the second half of last year, according to the Liv-ex index, clearly no one has told the financial secretary that the market had lost its sparkle.
He also promised 'to invest heavily in infrastructure', although when he said he would 'pay close attention to the construction industry's capacity to avoid bunching of projects causing tension in the supply of construction workers', Mr Tsang came closer than ever to admitting that some of the proposed projects are unlikely to create many jobs for local workers.
Some of his measures, like rate waivers and rent rebates, will help the unemployed. But his temporary HK$6,000 salary tax cut will do nothing to assist the jobless and little to boost demand. History shows that in uncertain economic times, people are far more likely to save one-off windfalls than to spend them.
What's more, although this was supposed to be a budget all about jobs, there were no measures to support employers. There were no reductions to the profits tax, or even the introduction of a tax loss carry-back facility, which would have aided businesses' cash flows without eating into overall government revenue.
Fiscal prudence may be a virtue, but Mr Tsang is overdoing it. By keeping public spending under 20 per cent of gross domestic product and barely dipping into the government's rainy-day savings (see the charts below), yesterday's budget falls far short of the government's response to the 2001-03 recession, even though economists expect this slump to be far worse.
The reason is not a lack of resources. It can only be a lack of vision.
