The sum of Leung's housing ambitions
Regina Ip says his housing blueprint, while impressive, will need to be backed by a financial commitment that a fiscally conservative government may baulk at in bad times
As expected, those who are determined that the administration of Chief Executive Leung Chun-ying should go down in flames lost no time in declaring his first policy address "dead on arrival". Yet, in spite of all the negative predictions about Leung's ability to map out a blueprint for Hong Kong's future, he did manage to deliver a few surprises.
First, those of us who are concerned about former chief executive Donald Tsang Yam-kuen's treatment of the policy address as though it were a budgetary exercise can breathe a sigh of relief that, finally, there are some signs of a return to "normalcy". Since 2007, Tsang had repeatedly substituted short-term fiscal relief for long-term policymaking in his annual addresses, giving away billions of dollars in salaries and profits tax reductions, a waiver of public housing rentals, one-off double payments of the old-age allowance, and so on. Such fiscal "sweeteners" should more appropriately be dealt with in the annual budget. They fanned public expectations for short-term fiscal palliatives but lulled the community into slothful avoidance of tough policy issues. "To give or not to give" became the first policy dilemma of whoever stepped into Tsang's shoes.
It is not clear what sort of internal wrangling went on between the fiscal hawks and the crowd-pleasers within the government. But there are signs that the voice of the hawks was heard. Leung said from the outset that "decisions which are fiscal- related will be announced by the financial secretary in the budget". Later on, as he went on to spell out his economic strategy, he reiterated that he is fully committed to "the principle of keeping expenditure within the limits of revenues, and to maintaining a business-friendly environment with a simple and low tax regime". In other words, an avowal of strict adherence to Hong Kong's time-honoured tradition of fiscal prudence.
Under intense public pressure to tackle "deep-rooted" social and economic problems, Leung did make some announcements that marked major departures from previous policies. Whereas his predecessor was in denial about the rise of poverty, shameful in our city of plenty, Leung agreed to efforts to establish a poverty line; research on the numbers living in abysmal conditions in caged beds and subdivided flats; and a study on how to reform our social security system and meet retirement needs.
His critics have slammed him for doing little other than setting up committees and task forces and undertaking studies. But Leung no doubt found himself subject to the same fiscal constraints as his predecessors. For an administration trapped by its obsession with balancing the books and fear of fiscal deficit, Leung has at least inched forward in acknowledging the existence of our disconcerting social and economic problems.
The chief focus of the address is no doubt his ambitious land, housing and development programmes - building 75,000 new public rental housing flats over the next five years and about 17,000 Home Ownership Scheme flats over four years starting from 2016-17 - just to mention two of his impressive production targets.
In the long term, the construction of new towns in northern New Territories and on Lantau Island, reclamation, rock cavern and underground space development and appropriation of deserted agricultural land are slated to produce sufficient land to meet the rapacious appetite of land-starved Hong Kong.
Leung's calculations, however, left out a number of important variables. First, it is hard to make an accurate prediction of long-term housing demand in the absence of an accurate forecast of population growth.
Second, as events in the deflationary years after the Asian financial crisis demonstrated, housing demand is a function of economic growth. Although prices of homes and commercial properties are likely to stay high in the near term in the absence of an immediate, substantial increase of supply, the upward trajectory could be abruptly disrupted by "black swan" events. What if there was a sudden contraction of demand or policy change on the mainland? What if China and Japan went to war over the Diaoyu Islands? What if some catastrophes of major magnitude, natural or man-made, struck parts of the world? What if interest rates shot up?
The risks of putting all our eggs in one basket aside, Leung's success in implementing his land and housing programme also depends on two important "known knowns" - the ability of his team of ministers and supporting staff to help him deliver on his promises, and the availability of the wherewithal to finance the development projects.
As the American people found out in their own battle over the fiscal cliff, if, in Hong Kong, tax increases are too bitter to swallow, departures from the entrenched financial policy of "keeping expenditures within the limits of revenues" are too risky to countenance, and the establishment of a city wealth fund along the lines of Singapore's sovereign wealth fund is a non-starter to bureaucrats and politicians alike, where and how would the chief executive secure a steady and ample stream of funds to finance his land and housing development schemes?
Regina Ip Lau Suk-yee is a legislator and chair of the New People's Party