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Illustration: Lau Ka-kuen

From miser to God of Wealth, John Tsang lifts lid a little on public coffers

Financial Secretary John Tsang has gone some way to loosen the government's tight fist and return some of its vast wealth to the people

John Tsang
JOSHUA BUT

Two years ago Financial Secretary John Tsang Chun-wah faced the biggest crisis of his 30-year civil service career.

The annual budget he presented to the Legislative Council - his fourth as the city's financial steward - had come under intense fire from all quarters. At issue was what to do with a HK$71 billion surplus, the third largest in history.

For many, such surpluses had become a powerful symbol of the government's reluctance to spend on social welfare despite a growing wealth gap.

But Tsang's HK$24 billion proposal for a one-off payment of HK$6,000 directly into workers' Mandatory Provident Fund accounts only landed him in deeper trouble. The notoriously poor returns of the retirement funds drew scorn and threats of a veto by lawmakers across the political spectrum, helping make the 2011-12 budget the least popular in more than a decade.

Face with such criticism, Tsang discarded his carefully crafted reputation for fiscal discipline and made an about-face faster than Ebenezer Scrooge at the end of Tsang the Miser began handing out gifts to all, like a modern-day version of Cai Shen, the Chinese god of wealth.

Tsang scuttled the MPF payment proposal and replaced it with an unprecedented HK$6,000 cash handout to all permanent residents. His following two budgets made sure everyone knew he had learnt his lesson, with tax rebates, rate waivers, electricity subsidies and extra "fruit money".

But a analysis has found that Tsang's sweeteners and one-offs are only the most visible indications of a steady increase in public spending during the financial secretary's tenure.

Expenditures have surged 87 per cent since Tsang's first budget in 2007, four times faster than revenue. The rise stands in stark contrast with the budgets of Tsang's predecessor, Henry Tang Ying-yen, who cut spending by 7 per cent even as government revenue rose by 39 per cent.

Much of the increase under Tsang has been non-recurrent spending, the found. It is projected to rise to HK$149 billion in the coming fiscal year, nearly double the HK$78 billion of four years ago. Last month's budget included another HK$33 billion in sweeteners.

Labour Party lawmaker Dr Fernando Cheung Chiu-hung, a social work lecturer at Hong Kong Polytechnic University, is not impressed. The rise in one-off payments, he said, showed Tsang's budgets lacked a long-term commitment to mounting social needs.

"A close look at his budgets shows Tsang has been keen to deliver one-off relief measures to mask social problems at their root," Cheung said.

"As a result, the wealth gap is widening and there are no signs that the problems arising with our ageing population are being solved. The elderly are facing longer queues for health care and social services."

But Tsang has been making some future commitments, increasing recurrent spending by 46 per cent over the past six years. Tang cut it by 4 per cent during his four-year tenure.

In the past three budgets alone, Tsang has raised recurrent expenditure by 21 per cent, almost double the growth in nominal gross domestic product in that time. The financial secretary even highlighted the rise in a recent blog post, noting that recurrent expenditure will be boosted by 10.5 per cent in 2013-14.

All the while, Tsang insists he has not departed from the prudent fiscal philosophy he inherited from his colonial predecessors, such John Cowperthwaite in the 1960s and Philip Haddon-Cave in the 1970s.

"The use of public resources has always been guided by the principle of pragmatism," Tsang said in his budget speech last month. "Resources are allocated in accordance with actual needs and priorities, taking into account fiscal sustainability."

Of course, the criticism of recent budgets has rarely centred on whether the government was spending too much, but rather whether Tsang and his predecessors had spent enough.

Indeed, the government's controversial reserves continue to grow. By the end of the current fiscal year, the government's rainy day fund is expected to reach HK$734 billion, enough to fund the government for nearly two years, or about HK$102,000 for every man, woman and child in Hong Kong.

Andrew Shuen Pak-man, cofounder of the Lion Rock Institute, a pro-market think tank, said the Beijing-backed government had turned to spending as way to quell public criticism.

"In the absence of democratic legitimacy, the government will find it very hard to counter calls from the public and political parties to increase spending," Shuen said. "We all know it is not sustainable since government revenue is highly volatile and may not be able to support expenditure during an economic downturn.

"The extraordinary measures taken by overseas governments to stimulate national economies, such as rounds of quantitative easing in the United States, give an unprecedented demonstration to Hong Kong people about how the government can weigh in to the economy."

Tracy Ho Suk-fun, a tax expert at accounting firm Ernst & Young, noted that that government had spent more than HK$220 billion on sweeteners since the handover in 1997. A better economy may help explain some of Tsang's largesse.

"Unlike his predecessors, Tsang is in a position where he has the capacity to return the wealth to the public," Ho said.

But she said the city needed clearer guidelines on how it spent public funds.

"Lines have to be drawn on the reserve level that the government feels comfortable with, and the proportion of GDP that the government could spend," Ho said. "Without guidelines, it's hard for the community to establish a meaningful discussion on long-term fiscal commitments."

Legislative councillor Cheung was harsher in his assessment, saying Tsang's short-term approach to budgeting was not what Hong Kong needed to rectify mounting social woes.

"Tsang's approach might have made him an excellent financial secretary 20 years ago," he said. "But the world has changed."

 

This article appeared in the South China Morning Post print edition as: From old miser to God of Wealth
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