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  • Oct 23, 2014
  • Updated: 10:35am
Jake's View
PUBLISHED : Sunday, 05 January, 2014, 5:11am
UPDATED : Sunday, 05 January, 2014, 5:11am

Tsang's budget concerns for Hong Kong ones most cities wish they had

Financial Secretary John Tsang Chun-wah issued a stern warning that revenue from taxes must rise if the city is to cope with rising expenditure brought about by an ageing population.

South China Morning Post, December 30

 

Let's consider this revenue problem as we do indeed suffer from one. It is so severe that, as of the latest figures, it has resulted in our government running a fiscal surplus at an annual rate of HK$52 billion.

This is a surplus, not a deficit, I hasten to remind you and it amounts to about 2.5 per cent of gross domestic product. Governments around the world would salivate to enjoy so strong a fiscal position. Mostly they struggle to keep their deficits to less than 3 per cent of GDP, a commonly accepted benchmark for the outside limit of fiscal prudence. Mostly they fail.

And fiscal surplus is not unusual for us. Over the last 31 years, which is as far back as I have data, we have enjoyed a surplus for three out of four years. Only for a brief period at the height of the 2002-03 difficulties did we suffer a deficit of more than that benchmark 3 per cent of GDP.

So mortified was officialdom at this lapse that a few years later the fiscal balance bounced back to a surplus of 7 per cent of GDP.

There is more. These figures represent cash accounts, a clumsy system that no corporate accountant would tolerate. Far better is accruals accounting, which takes full account of the present value of future obligations and revenue streams.

Our government has quietly published accrual accounts for a number of years. For the last fiscal year to March 2013 these showed a surplus of HK$75 billion, even greater than the HK$64 billion the cash accounts showed.

The accruals surplus would have been even greater except that our bureaucrats resorted to a cheap creative accounting trick in discounting civil service pension obligations. The surplus would otherwise have been too embarrassingly large.

So, yes, our government does indeed have a revenue problem. It is collecting too much from us, far more than it needs.

Of course, this might still be justified if we had a huge burden of fiscal debt to pay off. Our difficulty, however, is exactly the opposite.

The accumulated savings of our government and its directly administered statutory bodies, plus the investment profits that have been made on these savings, total HK$1.57 trillion. This is the equivalent of 74 per cent of GDP and amounts to HK$650,000 per Hong Kong household.

It is all pure savings entirely directly attributable to you and me. It stands entirely outside of any amounts required for issuance of coins, banknotes and the financial shufflings of the monetary authority.

It is far more than the International Monetary Fund says we conceivably need and, once again, the prospect of a treasure trove of similar proportions would have almost all governments salivating.

All that it does for us, however, is encourage waste of the money in big government infrastructure projects of dubious usefulness. Stock too much money in your home and you attract burglars. It has certainly been our fate. Our salivating infrastructure contractors have long broken into the public purse.

But, of course, it might still be justified to keep this much money in reserve if there really were a danger that it would all be run down over coming years in support of an ageing population.

I cannot work out how much of our social welfare goes to supporting the elderly but I do know that social welfare costs of HK$45.9 billion in the last year amounted to 11.3 per cent of government expenditure, down from 13.8 per cent five years ago. As a proportion of GDP it was 2.2 per cent, down from 2.6 per cent 10 years ago.

To me the overall figures suggest that we have enough savings to support even a rising number of elderly people for more than a hundred years without going into debt.

I suspect that what instead lies behind the note of pique in Mr Tsang's "stern warnings" of a revenue problem is nothing more than government annoyance with losing a court decision on welfare benefits for recent immigrants.

Get over it, John. It makes you look silly.

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This article is now closed to comments

sandersonc
My letter to the FS:
Dear FS,
Having just settled my tax bill I am once again financially hurting. I trust you realise life here is very hard and costly.
Here are a couple of ideas for the next budget:
Idea 1. Tax rebate.
Since we enjoy a surplus of funds and paying tax is a heavy burden for many people in Hong Kong I have an idea.
The Government will rebate all tax paid by individuals over the past 5 years. However, rather than pay out in cash the amount will be credited to our tax accounts as an amount on hand. Then subsequent tax demands would be settled against this. Of course if someone is leaving HK or retiring they can choose to have the rebate paid out to them directly. But for the majority, the money can be used to pay taxes for the next few years. This would be easy to administer and ensure the rebated funds were spent wisely rather than on the latest handbags or smartphones.
Idea 2. Tax deductible school fees.
Let school fees be tax deductible. By this I mean if I spend HKD100,000 on schooling, let me reduce my tax bill by HKD100,000. You should realise by sending a child to a none government school I am freeing up spaces and reducing the financial burden to the government. However, I do not get any help from you on relief for school fees.
What do you think of these ideas Mr Tsang?
Thank you!
singleline
Well, so far so good.
But the potency of the democratic movement in Hong Kong must not be understated.
One of the unintended (or intended) consequences of universal suffrage in Hong Kong is that, our future government welfare expenditures may rise like a balloon, causing deficit government budgets (whether cash or accrual basis) month-in and month-out, year-in and year-out.
But I think deficit budgets are not allowed by the Basic Law.
So the Hong Kong government has to raise taxation, reduce other non-welfare expenditures, running down the reserves, and/or start raising debts.
Hong Kong may no longer be a city most other cities wish they had.
Gra
John Tsang has got every forecast relating to year end Government deficits & surpluses wildly wrong since he has been in office.
Why does the CE tolerate such a buffoon? He is not fit for purpose. You cannot even label him a glorified bean counter. Why waste a good egg when he attends a community forum.
In the private sector, he would have been fired after messing up the second time.
johnyuan
I suspect in the Colonial time, a financial secretary is more important than a governor to the king and queen back in Britain. It is all about looking after the wealth in the colonies not to be cheated and wasted (by governors) but to ship it back to Britain’s treasury. That, after the hangover, the need of a FS becomes superfluous (Hong Kong is at the receiving end from central government and not the other way round) of which our present FS is doing a superfluous job – two terms in a roll. John Tsang has many academic achievements but the job he holds doesn’t really have much use of them but we are paying him and the 'job' anyway.
.
Lost one’s mind but keep the pompous.
John Adams
I just wish that Tsang with all his USA math education could at least add 1 + 1 and get 2 instead of 3
.
.... or 2 + 60 billion (same same)
johnyuan
A cursory check on John Tsang’s academic achievements in Wikipedia: he attended all the best universities in US including Harvard’s School of Government and studied architecture at MIT. He also holds a master degree in bilingual education from Boston State College. Most striking of all, he attended New York City’s Stuyvesant High School which is one of the best schools in US for students who are talented in math and science.
And by godly, what has he used of his education background in service of Hong Kong. Talents in leadership and design may count more to be a good government official and a successful  architect respectively; the bilingual education degree surely should be an area he can contribute immensely in Hong Kong. The most lamentable and disappointing is that in his 60 years of age, I yet have to see how he would add special schools for math and science or arts and music for the talented in Hong Kong that he so benefited in the States.
johnyuan
I could with all these absences of contributions John Tsang could have made in Hong Kong are vastly due to a typical Asian (Chinese) look at education: he just takes but unable to return to society at large.
.
I am not only sad for John Tsang but absolutely angry that he has had at least a century and half exposure in US, but he seems he has no sense of what US stands for as a nation for the successful part in education. He has wasted both US resources as well his own but wallowing in a make-believe job as a Financial Secretary, two terms in a roll.
rpasea
"Silly" is not the term that comes to mind when seeing Tsang's smiling face.
 
 
 
 
 

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