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

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

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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