Budget puts contorted official logic on display for all to see

PUBLISHED : Friday, 03 February, 2012, 12:00am
UPDATED : Friday, 03 February, 2012, 12:00am

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.

Then there is the government's attitude to the construction sector. In his speech, the financial secretary declared 'we will strive to preserve employment'. He then cited the construction industry as a shining example of how the government had protected jobs, with 'heavy investment in infrastructure projects'.

In fact, so heavy has that investment been - some HK$200 billion over the last few years - that the government has succeeded in creating almost 50,000 jobs. That works out at a cost to the taxpayer of HK$4 million per hard hat.

Now, with the government planning to break ground on a further HK$90 billion of new projects over the next year, officials find they are running short of construction workers. As a result, the financial secretary has budgeted an additional HK$320 million over this year and next 'to bring fresh blood into the industry'.

Anyone but a civil servant (or a construction consultant) might wonder what will happen to all that fresh blood once the government's new infrastructure projects reach completion and the workers find their jobs threatened.

But Tsang made the answer clear on Wednesday: to preserve employment, the government will simply launch more infrastructure projects, whether they are needed or not.

And most of them will not be needed. By investing to preserve jobs, the government has created a whole ecosystem of local officials, foreign consultants, mainland contractors and workers from all over, which thrives on proposing, planning and building ever more extravagant and grandiose infrastructure projects, regardless of any genuine economic return to Hong Kong.

We can see this ecosystem all around us: the Zhuhai bridge, the wildly expensive express rail link to Shenzhen, and in the proposal to reclaim 1,500 hectares - an area greater than Lamma island - of building land from the sea.

And of course, you can also see the effect of this ecosystem in the curious and frankly bizarre official logic on display in this week's budget speech.