When it comes to public finances, forewarned is forearmed

Hong Kong's public finances are arguably the world's healthiest - continuous economic growth and budget surpluses; near full employment; and multibillion-dollar fiscal reserves. Few would believe the city may one day face a serious debt crisis like in Greece.

Intriguingly, this is the warning issued by top government advisers. After a year-long study, the working group appointed by the financial secretary has painted a gloomy picture of fiscal health in the longer term. If public spending continues to grow at the current pace and nothing is done to mitigate the impact of an ageing population, the government could be hit by a structural deficit of HK$1.54 trillion by 2041; thereafter, the city will have to live on borrowings, according to the analysis.

How likely that will happen is a matter of debate. Fiscal health hinges on a wide range of factors. Some assumptions adopted by the working group, such as the growth in infrastructure spending, have already been criticised as an exaggeration. The analysis is further clouded by the finance chief's assurance that our economic fundamentals remain sound. It would not be surprising if people take the warning with a pinch of salt.

This is not to suggest the working group has not done its job with professionalism. The doomsday scenario is, after all, just forecast based on existing figures and trends. What matters are the underlying problems - spiralling public expenditure, a narrow tax base and a fast ageing population. These are valid issues worthy of serious attention.

The public should be reminded that the city was still battling to restore budget balance 10 years ago. But the painful experience - aggressive spending cuts and massive job losses - soon faded as the economy bounced back. Since then, previous administrations have explored new revenue options like a sales tax. But such proposals were unfortunately buried by a lack of political will and foresight.

The issues raised by the working group warrant a fresh look. This is particularly important as expectations on the government continue to grow. The pressures on public finance will only increase as revenues shrink and more money is spent on taking care of an expanding elderly population. The city can ill afford spending beyond the pace of economic and revenue growth. Regardless of how accurate the prediction is, the working group has rightly called for action before it is too late.