Budget puts contorted official logic on display for all to see

There was a wealth of curiosities in yesterday's budget.

Jake van der Kamp has noted that the most expensive measure of all - the financial secretary's HK$11 billion proposal to expand government loan guarantees for smaller companies - hands bankers a free licence to shovel rotten assets off their balance sheets and on to the taxpayer.

Meanwhile, this column has pointed out the absurdity of the government's HK$4.5 billion plan to give every household HK$1,800 of free electricity, while at the same time pledging to 'combat climate change, save energy and reduce emissions'.

But there are plenty more oddities. Consider, for example, the financial secretary's slavish insistence on referring at every opportunity to Beijing's 12th five-year plan for 2011 to 2015. This relic of discredited Marxist-Leninist central planning rated no fewer than six mentions, even though the plan is certain to fail in its central objective.

This column pointed out last year that for the plan to hit its economic rebalancing target it would require investment growth to slow to less than 3 per cent a year.

Since then the plan's objective has become even more unachievable. After investment grew by 25 per cent last year, hitting the modest target of rebalancing the investment-to-private-consumption mix of China's economy to 2005 levels - while meeting Beijing's growth objectives - would entail overall growth dropping to an average 6.5 per cent a year for the remaining four years of the plan. This would result in a hard landing and investment would have to shrink by around 1 per cent a year in real terms.

With a leadership transition approaching, following which newly appointed officials have traditionally ramped up investment in order to cement their positions and reward their supporters, there is no way that's going to happen. As a result, the 12th five-year plan, which Hong Kong's leaders regard with such deference, is destined to fail.