Recurring problem

The government is truly rich - embarrassingly so. The accrual-based consolidated accounts for the financial year 2009-10, released late last month, attest to this. The government provides both cash and accrual-based accounts: the former serves mainly to demonstrate that public money has been paid within the limits and ambits approved by the legislature; the latter presents more comprehensive information on the financial position and performance of the government, including that of the Exchange Fund, the Housing Authority and government business enterprises such as the MTR Corporation, and other government funds such as the Bond Fund. The accrual-based accounts also provide more comprehensive disclosures of the government's assets and liabilities, including in fixed assets and the provision for pensions.

The accrual-based consolidated statement reports a surplus of HK$141.7 billion, whereas the cash-based accounts show a surplus of HK$25.9 billion.

The accrual-based accounts show the government's net assets stood at an awesome HK$1.23 trillion as at the end of March last year. This figure comprised the general reserves of HK$379.5 billion, the Exchange Fund reserves of HK$553.4 billion and the capital expenditure reserves (money already spent on fixed assets) of HK$300.3 billion. Notwithstanding these, the cash resources available for government spending stood at a very healthy HK$520.3 billion.

The financial secretary and ministers mainly refer to the cash accounts, which distorts the true wealth at the government's disposal. If you just count how much cash a person has in his pocket, that is not necessarily a true reflection of what resources he actually has and can put to use. He may have all kinds of assets - they are just not in his pocket.

Thus, by combing through the cash and accrual accounts, it should be possible to have a much better dialogue with the financial secretary about what the government is spending on and can afford. For example, the government operating expenditure in the last financial year was about HK$251 billion and this is a slightly lower figure than the previous year's.

Hong Kong's GDP growth has been quite robust from the second half of 2009, hovering around 6 per cent for much of the year. Arguably, the government can afford to be much more generous.

The issue with the government is that it prefers to spend on capital expenditure and one-off projects but not on recurrent spending. Thus, it takes money from land-related incomes (land sales and land premiums on change of land use) and keeps it in the Capital Works Reserve Fund for capital works. This is why this city always has money for physical infrastructure. An example is the HK$18 billion one-time allocation for a university research endowment fund in 2009. Yet, there is enormous hesitance to increase recurrent expenditure on education, welfare and health.

Legislators should produce a year-to-year chart of recurrent spending to see the problem clearly. For example, in 2003, Hong Kong spent HK$48 billion on education. In 2010, we spent only HK$5 billion more. On welfare, seven years ago, we spent HK$33 billion and, by 2010, the figure was HK$41 billion. Health expenditure increased by HK$3 billion, from HK$33 billion, during the same period.

What should we make of this? In a city where the government acknowledges there is widespread poverty, particularly among the elderly, and with the wealth gap widening, this spending pattern is not going to help. Asking tycoons to cough up cash to create a special fund to cover welfare service gaps is not the way to go.

Despite the availability of public accounts information, Hong Kong legislators and civic groups don't use them to question officials and create the debate we need. Is there a lack of financial literacy in public affairs that needs to be urgently remedied?

Christine Loh Kung-wai is chief executive of the think tank Civic Exchange