The hidden hoards of 'small government'
Official hoarding of cash which belongs to Hong Kong citizens goes far beyond what is usually recognised. The government's fiscal reserves are listed at HK$488 billion. This is already about 28 per cent of gross domestic product and almost two years of recurrent government expenditure.
It makes the 2 per cent of GDP deficit announced by Financial Secretary John Tsang Chun-wah, in the face of the worst economic prospects at least since 1974, look more miserly.
But this is not half the actual reserves squirrelled away by leaders who fear that freeloaders and welfare seekers will want to raid the hoard. Coming from the mouths of overpaid officials and the inherited-wealth billionaires on the Executive Council, most of whom pay little, if any, tax, the arrogance is stunning.
Here is a list of other publicly owned reserve assets:
HK$480 billion (as at the end of 2008) in the undistributed profits of the Monetary Authority's Exchange Fund. In principle, none of this is needed to defend the currency peg which is protected by the convertibility of the note issue and by the operation of interest rates. Even if cash reserves also provide additional defence, as the fiscal reserves are mostly in foreign currency, they could be used to defend the currency - just as they were in 1998 to support the stock market.
Most should either be added to the fiscal reserves or, best of all, added to Mandatory Provident Fund accounts in a way that would recognise the contribution of older workers to Hong Kong's development in the 1960s and 1970s and relieve pressure on future recurrent spending on old-age-related benefits.
Then there is an additional almost HK$265 billion in unspent cash sitting in various funds as follows (from March 2008, the latest consolidated government accounts available).
HK$150 billion in the Land Fund. This fund received land sales revenue in the period of restricted land sales in the lead-up to the handover. Since then it has had no purpose - other than to obscure reality. It should be transferred to the fiscal reserves now.
HK$65 billion in the Capital Works Reserve Fund. This is unspent prior-year allocations for capital works, whether from land sales or transfers from the operating surplus. The hoard is now almost two years' worth of capital spending. Why?
HK$18.5 billion in the Civil Service Pension Reserve Fund - yet another sop to bureaucracy interests on top of the pensions paid out of recurrent revenue they are already promised.
HK$19 billion in the Loan Fund, HK$6 billion in the Lotteries Fund, HK$4.6 billion in the Innovation and Technology Fund: these are all allocations from prior years that remain unspent either because they were not needed or because of the lethargy of the bureaucracy in making them available. The Loan Fund should be sold to the private sector, the Lotteries money distributed to worthy causes for which it is intended, and the innovation fund either used or closed.
The above comes to HK$1.23 trillion, or 70 per cent of GDP - or five years of total operating expenditure!
All the above reserves are on a cash-accounting basis. On an accrual basis - used by companies - reserves were, according to the consolidated accounts at March 31, HK$1.22 trillion. That is after making provision for future civil service pensions of HK$497 billion. The difference between the accrual and cash accounts is primarily the HK$238 billion value of its income-generating businesses, and HK$280 billion in the depreciated value of buildings and infrastructure, minus the pension provision.
Even deducting HK$280 billion for essential services, net assets after pension provision are still HK$939 billion. That excludes land, which is still mostly government owned.
The administration may believe in 'small government' when providing services and support to citizens. But it believes in 'big government' when acquiring assets it can control.
Philip Bowring is a Hong Kong-based journalist and commentator