CY Leung policy address 2013

Hong Kong Chief Executive Leung Chun-ying delivered his maiden policy address on January 16, 2013, in which he unveiled a blueprint that will set policy direction in the next five years. Acknowledging soaring property prices and cramped living conditions, he said his top priority is housing.

CY Leung unlikely to open purse strings in policy address

CY has plenty of ideas to act upon in his policy address, and no shortage of cash. But a tradition of penny pinching makes bold moves doubtful

PUBLISHED : Monday, 14 January, 2013, 12:00am
UPDATED : Monday, 14 January, 2013, 5:39pm

As the days count down to Chief Executive Leung Chun-ying's maiden policy address, all eyes will be on how he can use the platform to turn the corner and revive his flagging popularity.

He will not have to look hard for ideas - political parties and concern groups are putting all manner of options on the table, including controversial proposals such as the unions' long-cherished idea of setting standard working hours, and the prospect of a universal pension scheme.

But Leung has been widely tipped to focus on "safe options" - such as schemes to help solve the city's housing problems. And he has made it clear there will be no cash handouts or "sweeteners" in Wednesday's speech.

Some believe Leung is merely trying to manage the public's expectations. But the state of public accounts may offer other clues as to his reluctance to pledge new spending.

For the current financial year ending on March 31, the government is budgeting to spend HK$393.7 billion, equivalent to about 21.4 per cent of the city's gross domestic product. The budget for recurrent spending was up to HK$264.3 billion, with education spending accounting for the biggest share, some 22.6 per cent of the total. Education, social welfare and health spending make up more than 56 per cent of the total between them.

And Leung's government has already added a large, recurring piece of expenditure - the old-age living allowance, which will see up to 400,000 seniors over the age of 65 receive a monthly stipend of HK$2,200. The annual cost of the scheme is HK$6.2 billion, significantly increasing the proportion of the budget dedicated to social welfare.

But few noticed that the allowance would take up most of the "new money" - extra revenue due to growth in GDP - that is expected to become available in the coming financial year.

That leaves Leung with little financial room for manoeuvre if he is to stay within the strictures of Article 107 of the Basic Law, which stipulates that Hong Kong shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its GDP.

The article laid the foundation for the principle of financial prudence to which the city has long stuck. It also makes a clear connection between the growth in public spending and the wider economic situation.

The target of restraining public spending to one-fifth of GDP - known as the "20-per-cent rule" - was set by former financial secretary Antony Leung Kam-chung in the early 2000s.

Both his successors, Henry Tang Ying-yen and incumbent John Tsang Chun-wah, followed suit.

Since the local economy remained sluggish last year amid mounting headwinds in the global economy, the city's GDP was only forecast to grow by 1.2 per cent, and a government source familiar with public finances said the allowance alone might have used up "90 per cent of the new money" from GDP growth.

"It will largely be a problem with the budget in the 2013-14 financial year, and should be overcome in the years afterwards," the source said.

But there is, of course, a counter-argument. There is no question that the government has plenty of money and is in a position most governments around the world can only envy after years of financial turmoil.

In his budget last year, Tsang predicted that the city would end the financial year with some HK$658.7 billion in its reserves - enough to fund every cent of government expenditure at its current level for 20 months.

What's more, Tsang's predictions have long proved pessimistic, as the government has cashed in on land sales amid a booming property market.

For 2010, Tsang's forecast deficit of HK$25.2 billion became a surplus of HK$75.1 billion. It was the same the next year: an estimated deficit of HK$8.5 billion ended up becoming a surplus of HK$66.7 billion.

"What are your expectations of the 2013 policy address?" Video by Hedy Bok

Just last week, accounting firm PricewaterhouseCoopers predicted a budget surplus of HK$28.7 billion for this financial year, dwarfing the cost of the old-age allowance. Tsang had predicted a small deficit.

"It has become a norm that the government underestimates the amount of fiscal surplus," Labour Party chairman and lawmaker Lee Cheuk-yan said.

Government officials, when preparing budgets, were inclined to underestimate revenue, particularly from non-recurrent sources like land sales and stamp duty, he said.

"Treasury officials are not inclined to give the nod to substantial investments in education or welfare, which would incur increases in recurrent government expenditure," Lee said. "In recent years, the government has often ended up sitting on a hefty fiscal surplus, and then coming under huge political pressure to offer giveaways."

Executive Council member and former accountant Starry Lee Wai-king, of the Democratic Alliance for the Betterment and Progress of Hong Kong, urged the financial secretary to consider lifting the 20-per-cent rule.

"It is not a legally binding rule," she wrote in her column in a Chinese-language newspaper last month. "If the level of public spending is increased by two percentage points [in terms of GDP], the government can have an extra HK$40 billion o hand to deal with society's deep-rooted problems."

Accounting sector lawmaker Kenneth Leung Kai-cheong said that despite the sluggish economy, the government was still likely to record a surplus of between HK$10 billion and HK$20 billion for this financial year.

But he believes Leung Chun-ying will announce only minor changes and is unlikely to roll out any long-term plans.

Brian Fong Chi-hang, vice-chairman of independent think tank SynergyNet, said the problem with Hong Kong's public finance was that the government relied too much on unstable income sources such as land sales and stamp duty.

He said the government should consider establishing a "financial stabilisation fund" to ensure that long-term investments can be rolled out to fit the needs of society.

Additional reporting by Gary Cheung



Koon Luk-ha, 60, retiree: "I think the most important thing is housing. It's too hard for young Hongkongers to buy a house today. The elderly should be able to really retire instead of going back to work at the age of 60 or more. The government should also guarantee the welfare benefits of we Hongkongers instead of mainlanders."


Tsui Sin-ling, 72, retiree: "I don't think C.Y.Leung is good but I think we should give him a chance and wait to see his future policies. It would be terrible to let people like "Long Hair" [Leung Kwok-Hung] govern. People waving the British flag on marches cannot represent the majority. We Hongkongers should love Hong Kong and create a united and stable society."


Laurence Lui Shun-fat, 50, salesman: "I want the government to address housing prices. Besides, the development of land should be more reasonable and fair. The government should increase its own efficiency."




Rebecca Ma, 53, visiting her native Hong Kong from her Canada home: "The most important thing is to ensure freedom of speech in Hong Kong. The government should hear and accept suggestions from citizens. The government should also pay more attention to the elderly."



Indra Gurung, 48, driver: "I want the government to control rents. They are still increasing. And another thing; drivers here drive too fast and don't follow traffic signs and procedures. everything here is good except for the traffic and the drivers."




Lillian Cheung, 24, fashion designer: "I want the government to provide more opportunities to local designers and brands. LV and Gucci are everywhere. Locals have no room to develop. I also hope C.Y.Leung will not lie any more and the government does something concrete. I hope people in Hong Kong can say what they want and what they like, even though that is not the case at present."


Ho Jian-ming, 52, is a teacher visiting Hong Kong from his home in Europe: "I hope Hong Kong can go back to what it was. It does not have to listen to Beijing for everything. Obviously, Hong Kong is now economically connected to the mainland, but economic reliance does not necessarily mean political reliance. I know now the chief executive is unpopular, but I hope that might change. "


Asle Au, 19, University of Hong Kong student: "The first policy I want to see is one that addresses the housing problem. Everyone knows young people cannot afford an apartment in Hong Kong. Also the government should develop long-term policies to address poverty and build more infrastructure such as hospitals to help the poor."



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