Inaccurate budget forecasts are costing Hong Kong dearly

In his budget speech in February last year, Financial Secretary John Tsang Chun-wah forecast the government would turn in a HK$3.4 billion deficit for the fiscal year that ends next month.

Monitor was doubtful. "Far from running a deficit next year, the government will once again turn in a handsome surplus," it predicted.

In an attempt to put a number on the likely size of that surplus, Monitor looked back at how Tsang had underestimated the government's final balance in each of his four preceding budgets. On past form, the column concluded, instead of ending up in the red come March 2013, Tsang would actually find himself in the black to the tune of HK$60 billion.

Sure enough, last week the government said its balance for the nine months to December was HK$40 billion in surplus.

Considering that for the past few years the government has typically run a consolidated surplus of about HK$15 billion in the January-March quarter, or about 20 per cent of its full-year surplus, on March 31, Tsang is indeed likely to end up with a budget in the black by somewhere between HK$50 billion and HK$60 billion (see the first chart).

Tsang's woeful inability to make accurate forecasts for his own budget, repeatedly predicting deficits when he actually generates fat surpluses, has cost Hong Kong heavily. His excessive conservatism reduces the government to handing out short-term budget giveaways on a one-off basis, while preventing it from making more effective long-term fiscal plans, for example by cutting the rate of profits tax to boost business activity and private investment.