The wrong kind of economic prudence
The recent budget contains perhaps the worst five-year economic forecast in Hong Kong's history. Yet such is the prudence of Financial Secretary John Tsang Chun-wah that he anticipates that, at the end of this unprecedented period, we will still have fiscal reserves of HK$391.1 billion, representing 19.9 per cent of gross domestic product and 14 months of government expenditure. Hong Kong citizens are entitled to ask: 'why bother generating surpluses at all, if they are not to be spent even in times like these?'
Stung by criticism that he has been too stingy, Mr Tsang now says that he will 'wait and see' before taking further measures, if necessary. Hong Kong is a ship that is about to sail into the worst financial hurricane in living memory. What sort of captain would you prefer on the bridge? Someone who says: 'let's wait and see how bad this gets'? Or one who says: 'we shall now deploy the full resources of this ship to ensure the safety of passengers and crew'?
Prudence is a relative virtue. Mr Tsang paints a convincing picture of how bad things are in our economy; he is equally convincing in warning of worse times ahead. He knows that a very bad storm is coming, but his approach is: 'let's wait and see'. He calls this being prudent and pragmatic, but it is the wrong sort of prudence for the circumstances.
How might the community have reacted if he had said instead: 'Thanks to our policy of fiscal prudence, we have now built up sizeable reserves. We citizens of Hong Kong should wake up every morning and remind ourselves how lucky we are, not to be in the situation faced by many countries who are now in debt at the worst possible time. But these are unprecedented times, and prudence now dictates that I should be more generous rather than less so. I will spend all the reserves in the next five years, if I must.'
I suggest that such a statement would have given the community confidence. And confidence, above all, is what it is necessary in times such as these.
All around the world, countries are playing 'policy catch-up'. Events are moving so fast, governments can't keep up. By reacting to events, rather than anticipating them, policymakers are losing control. The result is that the situation is worse than it could be and the costs are ultimately far higher.
It is astounding that the budget did nothing to help the business sector, and this has caused a great deal of anger. Legislators are reduced to arguing over the merits of schemes to create 62,000 jobs, while the small and medium-sized enterprises that provide 3.8 million jobs have been essentially left to their own devices. This sector is the lifeblood of our economy: the government should be doing everything in its power to help companies conserve cash flow so they, in turn, can preserve jobs.
Calls for the suspension of provisional profits tax went unheeded last November, when such action would have provided real benefit. Policy inertia and 'wait and see' has meant that the moment of maximum benefit has passed. Companies have an inbuilt incentive not to fire staff: redundancy is expensive and bad for morale; rehiring in good times is far more difficult than keeping good staff. Rather than appealing to employers' morality, the government would do far better by introducing concrete measures to bolster their natural inclination to keep staff.
The government is keen to avoid short-term relief measures becoming long-term commitments when the crisis is over, as well as to avoid permanent encroachment of the public sector into the private sector, into the territory of the free market. This is well and good, and can be supported. But, even recognising these constraints, it is possible for the government to cut taxes and charges for businesses and use our sizeable surpluses to replace revenue thereby lost; and to send a clear message of support for those in the community who will inevitably suffer as a result of this downturn.
Markus Shaw is a businessman and environmentalist