CY Leung policy address 2014

'Hong Kong could run out of money within 20 years', warns John Tsang ahead of budget

Financial chief says surpluses will not last forever, days after chief executive's welfare splurge

PUBLISHED : Monday, 20 January, 2014, 5:09am
UPDATED : Monday, 20 January, 2014, 4:46pm

Financial Secretary John Tsang Chun-wah warned yesterday that fears public spending was rising too fast were "not without reason" - doing little to ease talk of a split with Chief Executive Leung Chun-ying.

Leung used his policy address last week to announce a huge increase in recurrent spending, much of it on welfare, and insisted that the government could afford the bill of up to HK$20 billion per year. Writing on his blog yesterday, Tsang (pictured) said that while the government could afford the cost for the foreseeable future, the day would come when surpluses turned to deficits.

But one of Asia's richest men, Sun Hung Kai Properties co-chairman Thomas Kwok Ping-kwong, said the government "deserves much praise" for its poverty alleviation plans.

In his post, Tsang warned that recurrent spending, once implemented, could be difficult to cut, and said spending could snowball if factors such as inflation and a growing number of beneficiaries were taken into account.

Tsang wrote that "the day when the budget turns into deficit and fiscal reserves are used up will not be in the distant future, though not while the current administration is still in office [its term runs until 2017]".

"I will spare no effort to maintain a budget surplus in my remaining term to save more and fight for more time to tackle these structural problems," he wrote.

Talk of a split between Leung and Tsang arose on Friday, when Leung's No2, Chief Secretary Carrie Lam Cheng Yuet-ngor, said extra spending in the policy speech would cost half the HK$20 billion Tsang claimed.

Tsang announces his budget next month, and is expected to warn that the city's fiscal reserves risk drying up in 20 years due to costs associated with the ageing population. His comments will be based on the findings of a team of economists.

Tsang warned on his blog last month: "One day we will have to deploy our reserves to maintain our public expenditure. And eventually, reserves will be used up." He said revenue from taxes might have to rise.

The government's spending, including an allowance for low-income working families, won praise from tycoon Kwok.

"The government has indeed done a good job in helping the poor and it encourages people to work," said Kwok, who served on the commission that set the city's first minimum wage at HK$28 in 2010. "I wouldn't say it is welfarism; the government has a responsibility to help the poor and Hong Kong is financially sound."

On the government's pledge to bring 470,000 public and private homes on line in the next decade, Kwok said a clear target would help market players make decisions, and reduce the risk of big price swings. He said a pilot arbitration scheme for premiums paid by developers for change of land use would help provide an extra 4,000 to 5,000 flats a year.