Cash rich, vision poor
Hong Kong has a headache any other government would kill for: sitting on too much cash and not knowing what to do with it. In another three weeks, the chief executive will roll out this year's policy proposals in his annual policy address. The speculation is on whether he will continue to keep the public sweet with one-time handouts - perhaps another round of tax or rent rebates. Few expect the government to budge from its past practices, even though it is awash with huge fiscal reserves of over HK$510 billion. To the unassisted middle and lower classes, these big fat billions don't amount to a hill of beans.
The government will continue to hide behind the same old mantra of the need to save for a rainy day. The problem is, the roof is leaking for many of our hand-to-mouth wage earners. This government is either too scared or doesn't care enough to break its hardened, hoarding habits.
It is blindingly obvious that one-off measures, nice as they are, do nothing to relieve chronic poverty, now at 15 per cent of the population. Social envy is rife and anti-business sentiments rampant.
Some economists and politicians are openly questioning whether leaving huge fiscal reserves unused is the optimal way to manage our finances. Nobody is advocating that we live beyond our means; in fact, we are required by the Basic Law to achieve a balanced budget. But the Basic Law does not require us to keep our coffers bulging with unused cash.
Each year, Hongkongers are treated to the familiar ritual of the government forecasting dangerous deficits that often turn into mega-surpluses. In the 2007-08 financial year, it famously forecast a surplus of HK$25.4 billion, which by year's end jumped to HK$123.6 billion. How could the government be so far off the mark?
This year it predicted a deficit of HK$25.2 billion. But all signs point to another budget surplus. The projected deficit was based on the government's assumption that land revenue will amount to HK$34 billion. But from land auctions in just the first five months of the year, the government has pulled in HK$35 billion. That balloons to HK$53 billion with land premiums, without counting the revenue from stamp duty for real estate or stock transactions. That is to say, the budget reached the break-even point in the first five months. Besides, more land sales are planned in the remaining seven months as the government scrambles to cool the red-hot property market. Another major miscalculation is in the making.
Barring a drastic downturn, we can count on a stable trend in surpluses.
Over the past five years, our annual surplus has been averaging HK$44.7 billion. Our current fiscal reserves are sufficient to cover government operating expenditures for 27 months. When the chief executive was financial secretary, he proposed a cushion of 18 months; his successors Antony Leung Kam-chung and Henry Tang Ying-yen both settled for 12 months. The margin of safety of 27 months no longer makes any fiscal sense.
Are we losing our fiscal nimbleness? Some economists are decrying this 'more is better' philosophy of fiscal management. For, by sitting on huge unused reserves, it squanders opportunities to plan for our future by helping citizens to help themselves. We deserve better than a handful of incoherent band-aid measures.
With our annual surplus averaging over HK$44 billion, we could increase recurrent spending by HK$30 billion and still be financially prudent. And HK$30 billion goes a long way. Take education, for example. Currently, only 18 per cent of our high school graduates are admitted to government-subsidised, first-degree programmes compared to 26 per cent for most advanced societies. Each year 17,500 high school graduates qualify for university entrance, but there are subsidised first-degree placements for only 12,500. Adding another 5,000 university places would cost only a measly HK$1.2 billion - small bucks with such a big bang.
If the government really wants to see Hong Kong morph into a knowledge economy, one place to start is to pour more money into education, reducing the teaching hours of our primary and secondary teachers to relieve their teaching load and provide skill enhancement for the academically challenged.
Increasing recurrent spending on visionary investments in our future should not be characterised as depleting our reserves, for they translate into growth and diversity for our economy. Yet, some government leaders choose to play safe and do nothing.
Coming from a business background, I used to be a die-hard fiscal conservative, favouring non-recurrent spending - which can always be cut back if the economy turns south. But I have had a 'St Paul' moment, when I realised that sustainable growth demands visionary investments.
I throw down this challenge to the government: set a 10-year goal to raise the income of most Hong Kong households to half of our median household income, now at HK$18,000 per month - a HK$9,000 target. Currently 600,000 families, totalling 1.24 million people, are below this threshold. For an ultrachic city swimming in cash, this is a statistic of shame.
When are we going to see greater recurrent spending to increase our international competitiveness? Hoarding is not governing. The annual sprinkling of small mercies is no substitute for strategic spending needed to compete against our regional rivals.
Michael Tien Puk-sun is a Hong Kong deputy of the National People's Congress and chairman of G2000 garment retailer