Calls for government to limit size of fiscal reserve

Guidelines have to be set on how much public coffers should contain so that surpluses can be better used, experts and lawmakers say

PUBLISHED : Tuesday, 19 February, 2013, 12:00am
UPDATED : Tuesday, 19 February, 2013, 8:12am

As the city's fiscal reserve hits a record HK$709 billion, experts and lawmakers are urging the government to set a limit to how big the public coffers should be.

A pan-democratic lawmaker has asked Financial Secretary John Tsang Chun-wah to limit the reserve to 20 months of government expenditure, while two local think tanks say clear guidelines should be drawn so that surpluses can be better used.

The administration on January 31 announced that its fiscal reserve had reached HK$709.1 billion by the end of last year - up from HK$669 billion in the previous financial year - partly due to a considerable increase in stamp duty and land sales revenue.

The amount is expected rise further by the end of the current financial year next month.

The government's fiscal reserve comprises eight funds, covering innovation and technology, disaster relief, land, loan, lotteries, capital works, capital investment and civil service pension.

It also forms a crucial chunk in the Monetary Authority's Exchange Fund, which came up to almost HK$2.8 trillion at the end of last year.

Brian Fong Chi-hang, vice-chairman of think tank SynergyNet, last month called on the government to set out the amount that the fiscal reserve needs to meet its ends.

Former financial secretary Donald Tsang Yam-kuen had in 1998 defined this target level as "meeting the operating, contingency and monetary requirements of public finance".

Fong said this had been the practice of Hong Kong's financial chiefs since the colonial days, until 2007 when then-incumbent Henry Tang Ying-yen scrapped it after the government no longer had a deficit. The target level for the fiscal reserve then was equivalent to about 12 months of government expenditure, he said.

Tang believed that the reserves should instead be maintained at "an appropriate level", and Tang's successor John Tsang inherited that belief, Fong said.

Civic Party lawmaker Ronny Tong Ka-wah said it was time for Tsang to revive the target level, suggesting that it be set at 20 months of government expenditure instead of just 12.

"The fiscal reserve is now equivalent to 24, 25 months of the government's expenditure, that's a waste of resources," he said.

"It shows that the government is under-spending, and I can't see any other government in the world with this kind of luxury."

Before Chief Executive Leung Chun-ying took office, he had promised his administration would find social and economic investments to make better use of the reserve, such as by addressing the problem of the ageing population and promoting the economy's growth sectors.

But the topic has rarely been raised again after Leung came into office last year.

The government needed to be more active, and invest in the medical, education and social welfare services, he said.

Dr David Wong Yau-kar, chairman of think tank the Business and Professionals Federation, and a former US Federal Reserve economist, said Tsang owed the people an explanation.

"I don't know whether HK$700 billion is a lot or not … I just feel that it is a very vague [idea]," he said. "The government has a lot of liabilities … and I don't think many people have a clear picture about [how much the government really needs]."

At Sunday's weekly City Forum, executive councillor and pro-government legislator Jeffrey Lam Kin-fung said the government's liabilities was at least HK$900 billion, including HK$600 billion on civil servants' pensions and the remainder on infrastructural works.

The government should continue to keep the expenditure within the revenue limits, he said.