Legislators should invite the financial secretary to explain how various figures are put together in the budget. While every year, media reports focus on the financial secretary's speech, hardly any attention is given to the supplement and appendices published at the same time. They contain a mass of figures with not-so-easy-to-understand footnotes. It doesn't make easy reading for the general public, which is probably why they are usually ignored.
One of the appendices is the government's Medium Range Forecast (MRF) of economic growth which extends over five years. Thus, this year's budget is accompanied by the forecast from 2009 to 2015. Previous financial secretaries have said public spending must be kept in line with growth of the gross domestic product to balance the books in the medium term, since the Basic Law requires a fiscal balance to be achieved. But how this affects medium-term policymaking is hard to figure out.
On the expenditure side, the financial secretary notes that the government will not reduce spending because of a reduction in revenue as there is a need to support the economy. However, a review of the MRF and a comparison with last year's forecast suggest a less generous approach.
It would be useful for legislators to match expenditure figures from year to year and question the financial secretary closely, to help the public recall what was promised in previous years, what was in fact spent and the reasons for underspending.
Another aspect is GDP forecasting. The government is predicting a period of sustained budget deficits totalling about HK$97 billion, with the deficit for 2009-10 amounting to just under HK$40 billion, but gradually declining to HK$1.3 billion by 2013-14. The government's growth forecast is based on an assumption of GDP contraction for 2009-10 of minus 2 to 3 per cent, and an annual average trend growth rate for Hong Kong's economy in real terms of 3.5 per cent for 2010-11 to 2013-14. Is this rather rosy view of GDP growth overly optimistic? Legislators are best placed to clarify the answer.
Other forecasts are equally important to consider, such as estimates from land sales and other land-related incomes. Land revenues are of particular interest in Hong Kong because virtually all the land here is leased from the government, and Hong Kong's land-leasing system empowers the government to exercise two important land policy measures - regulating supply and capturing development windfalls - that is, charging a tax (the 'land premium') on changes of land use. This system has enabled the government to generate substantial revenue from land-related transactions.