John Tsang must show real vision on Hong Kong's economy

Joseph Wong calls on the financial secretary to demonstrate in his budget speech a real grasp of how the government is going to cope with rising public expenditure, now and in the future

PUBLISHED : Thursday, 20 February, 2014, 8:05pm
UPDATED : Friday, 21 February, 2014, 3:57am

It would be an understatement to say that Financial Secretary John Tsang Chun-wah's coming budget is unlikely to be popular. He has already given ample hints that the one-off relief measures given year after year will be withdrawn or substantially reduced.

This should please critics like Ronnie Chan Chichung, an outspoken property tycoon and strong supporter of Chief Executive Leung Chun-ying. Chan's main complaint is that Tsang has not been using the government's surplus revenue for worthwhile and sustainable projects.

Sorting out the "sweeteners" and weighing up the consequential public reactions should be the least of Tsang's concerns

We should not be surprised by budget proposals to cut back on the two-month rent exemption for public housing tenants and abolish the electricity subsidy and rates waiver. Tsang has probably also been pondering the salaries tax rebate, which would affect the middle class, who already feel they were left out in last month's policy address.

But sorting out the "sweeteners" and weighing up the consequential public reactions should be the least of Tsang's concerns. The job of a financial secretary is not to please everyone or a particular class with giveaways. Also, the job is about more than ensuring the government's policy programmes are adequately funded.

A financial secretary should have the integrity and ability to tell his leader and the people about the health of public finances and, if necessary, offer an unpleasant cure. He should also have the vision to discern future challenges facing the economy and propose solutions.

Flash back to November 2007, when Tsang consulted the public on his first budget. He told us that the government should be prepared to meet the challenges ahead, including volatile revenues, a narrow tax base, rising medical costs, an ageing population and better environment. To be fair, he should not be held wholly accountable for dealing with all these challenges. But, as financial secretary, he has a particular responsibility for some.

Take the narrow tax base, which is the main cause of the government's volatile revenues. In 2007-08, only 1.3 million people, or 37 per cent of the working population, paid salaries tax. This year's consultation document on the budget says that in 2011-12, 1.6 million people, or 45 per cent of the working population, paid salaries tax.

There is no longer any mention of a narrow tax base. So I hope Tsang will tell us in the coming budget whether there is a need to review the present tax regime to address the issues of volatile revenues and a narrow tax base, or whether his previous concerns no longer exist.

On retirement protection for our ageing population, Tsang has yet to lay out a comprehensive programme of improvements to the Mandatory Provident Fund scheme, covering such areas as lowering management fees and broadening investment choices for employees. Also, he should give a more definitive view on the question of a comprehensive retirement scheme for all.

It was not until last year that Tsang announced in his budget the setting up of a working group on long-term financial planning "to explore ways to make more comprehensive planning for Hong Kong's public finances to cope with the ageing population and the government's other long-term commitments". Recently, he has written on his blog that he will release the group's main conclusions in his budget. In the same context, he told us that, one day, the government would run out of fiscal reserves and would have to raise revenue by means such as increasing taxes and issuing bonds. He has refrained from making further remarks on this; the chief executive said categorically after delivering his policy address that the government had no plan to increases taxes.

As financial secretary, Tsang needs to do the honourable thing and give the public a full and true picture of our financial position, not only for this year, but also for the next five years and beyond. We know for sure that recurrent expenditure will rise significantly as a result of implementing the low-income working family allowance scheme announced in the policy address. But we need to know the full cost of this poverty-alleviation measure.

We should also be told of the financial impact from the Court of Final Appeal judgment over the removal of the seven-year restriction on new immigrants claiming social security benefits.

I am concerned about the regular-isation of various pilot schemes launched by the Community Care Fund, not just regarding the effect on recurrent expenditure, but also because of the affront to the government's long-established practice requiring expenditure proposals to be based on rigorous policy studies and discussions, not one-off handouts.

Tsang has reminded us time and again that the Basic Law requires the government to strive to achieve a fiscal balance and keep the budget commensurate with the gross domestic product growth rate. He has said the government has complied with these requirements for the past 15 years.

But, at the same time, we have learned that recurrent expenditure has grown by 95 per cent since 1997-98, with social welfare items increasing by 179 per cent. Also, while Hong Kong's GDP has grown by 60 per cent since 1997-98, the government's total expenditure has more than doubled, by 126 per cent, during the same period. If this trend is likely to continue or indeed rise in the next 15 years, Tsang should face up to the challenge now and not leave the problem to his successor.

With an inevitable expansion in recurrent social spending, raising additional recurrent revenue should not be ruled out in the budget. Leung has rejected the suggestion of an arrivals tax targeted at mainland visitors. I agree that the proposal is discriminatory and should not be pursued. But a new departure tax for all passengers leaving Hong Kong via the land border should be seriously considered as a means to raise additional revenue.

I recall that, in his 2002-03 budget, then financial secretary Antony Leung Kam-chung proposed a "boundary facilities improvement tax" of HK$18 per person, which is a departure tax by another name. We already have an airport passenger departure tax of HK$120 per person. Also, there is no denying that our land crossing facilities have been substantially improved in the past 10 years and will continue to be upgraded to cope with the increase in passenger traffic between Hong Kong and the mainland. Expanding the coverage of our departure tax system is non-discriminatory and well justified on policy and financial grounds

Tsang's budget will be subject to critical scrutiny. He will show us whether he remains a competent civil servant-cum-accountant, or if he has finally acquired the true qualities of a financial secretary.

Joseph Wong Wing-ping, a former secretary for the civil service, is a political commentator