Risks of fiscal deficit are real enough in Hong Kong

Regina Ip says the costs of an education and health care system fit for an ageing society competing in the global economy are not to be sneered at. Thus we need a growth strategy

PUBLISHED : Sunday, 16 March, 2014, 3:33am
UPDATED : Sunday, 16 March, 2014, 3:33am

More than two weeks after the delivery of the financial secretary's budget for 2014-15, pundits continue to debate whether John Tsang Chun-wah was crying wolf in warning Hong Kong of an impending structural fiscal deficit and whether the warning masked officials' failure to formulate a growth strategy for the city.

There are no lack of critics who impugn the need for a growth strategy at all. Alex Lo, a columnist of this paper, cast doubt on pledges to grow the economy by promoting tourism and information technology. "If the health of our citizens is taken good care of and our children, whether rich or poor, are getting the kind of education that would make them globally competitive, would that not make us far better off?" Lo asked in a column last month. "Would that not be a straightforward goal that would make our city far more liveable and competitive, and cause less social tensions than expanding tourism - read mainland tourism - or creating an IT industry we never had and have no idea how to develop?"

The question is: what kind of education would make the city's "products" globally competitive?

A high-quality education is no doubt the key to global competitiveness, but parents know that comes with a huge price tag. Parents who have sent their children to Ivy League or equivalent universities in the West know this too well. For a foreign student ineligible for financial assistance, one year at an Ivy League or equivalent university would easily cost US$70,000, including tuition, room and board, books and supplies and personal expenses. How many parents can afford that?

Short of sending their children to study abroad, Hong Kong parents can choose to place them in international schools or direct subsidy schools in the city. Chinese International School, one of the most popular international schools, charges HK$179,800 per annum for lower secondary school students. Tuition fees of direct subsidy schools are much more modest, but are still regarded by many as out of reach of mid-income parents.

Education at government or aided schools locally cost much less to parents, but the bill for the taxpayers has been steadily rising. The government's expenditure on education now amounts to HK$75.4 billion, or 18 per cent of government expenditure. It has gone up by 68.7 per cent since 1997, but parents and employers remain unhappy about the quality of the education provided.

The decline in the standard of English and Chinese of many local graduates is a source of perennial complaints from employers, and professors teaching science and engineering to local students complain about the decline in competence in mathematics. Humanities departments in local universities face a real threat of downsizing, if not disappearance altogether, if nothing is done to reverse the trend of decreasing interest in the study of humanities. Can we really say today that our local school system is globally competitive?

In early 2009, probably out of desperation to revive the economy in the aftermath of the 2008 financial tsunami, then chief executive Donald Tsang Yam-kuen announced plans to launch education as one of six new "advantage industries". In other words, other than providing education for the sake of education, the government decided to groom education as an economic sector, a money-spinner, to help keep our gross domestic product humming along.

There is no "advantage" in promoting local education if parents are not satisfied with what they have got. If the government had in mind granting land to overseas education providers to serve the mainland market, the government risks angering the locals by creating even more competition for scarce resources.

In any event, the current administration, in order to give priority to providing land for housing, decided to withdraw the land originally earmarked for private universities.

It is understood some overseas universities are still interested in leasing land to build their campuses as private initiatives, but the previous administration's plan to groom education as a money-spinning economic sector has come to naught.

A similar tale can be told of the Tsang administration's efforts to groom medical services as one of the six new "advantage industries". Yes, the business of private practitioners and private hospitals has boomed because of demand from mainland Chinese patients. Yet, of the four plots of land put up by the government for development as private hospitals, only one has been taken up, as few locations are suitable for business as a private hospital catering to the high-end clients.

Meanwhile, to meet demands arising from escalating expectations and the ageing of the population, the government is spending HK$56.7 billion on health care, or 14 per cent of total government expenditure. Spending on health care has gone up by 87.5 per cent since 1997.

So the question remains: how do we get the wherewithal to pay for a quality education and health care for all?

If our tax base remains as narrow as it is and no new engine of growth is available, the risk of Hong Kong incurring a structural deficit in the foreseeable future is real.

Regina Ip Lau Suk-yee is a legislator and chair of the New People's Party