Is financial chief John Tsang ready for a budget backlash?

Financial chief will take first steps to deal with future budget woes - and can expect a backlash

PUBLISHED : Monday, 24 February, 2014, 4:45am
UPDATED : Monday, 03 October, 2016, 5:52pm

The concept of "overloaded government" - a situation in which a country's economy grows more slowly than its spending on public policy and welfare benefits - was one of the most popular topics for discussion among social scientists in Western democracies in the 1970s.

When you look at how Hong Kong's government expenditure since the handover has outpaced its economic growth, you will see that the days of an "overloaded government" cannot be far away.

Government expenditure has surged by 126.4 per cent since 1997, compared with a 56.7 per cent increase in gross domestic product in the past 16 years.

Advisers to Financial Secretary John Tsang Chun-wah estimate that government expenditure might outstrip revenue in 10 years. Tsang is expected to warn in his budget speech on Wednesday that the city's fiscal reserves of HK$734 billion will run dry in about 20 years if nothing is done to ease the financial burden of dealing with an ageing population.

According to the forecast by the government steering committee on population, the number of people aged 65 or above will more than double from 980,000 in 2012 to 2.16 million in 2031 and rise further to 2.56 million by 2041.

When the Basic Law was being drafted in the mid-1980s, one of the major concerns of the business sector about democratic development was that universal suffrage would result in excessive welfare spending.

Hong Kong has yet to attain full democracy, but still - out of the need to have his name live on in posterity or due to a lack of innovative ideas to invest the fiscal surplus for the long term - every chief executive has been inclined to introduce at least one costly new initiative every year for the past decade.

Apart from one-off relief measures, at least seven initiatives incurring annual recurrent expenditure of more than HK$200 million have been introduced since 2009. They range from the HK$600 million annual bill to allow residents aged 65 or above and some disabled people to travel on the MTR, franchised buses and ferries for a flat HK$2 fare to the HK$3 billion-per-year Low-income Working Family Allowance.

In his second policy address last month, Chief Executive Leung Chun-ying also doubled the annual value of vouchers under the Elderly Health Care Voucher Scheme for people aged 70 or above to HK$2,000, costing the public purse an extra HK$582 million a year.

It appears that, even before the advent of full democracy, there are already structural reasons leading to an increase in government spending.

Educated middle-class people who care about social justice will not object to providing more resources for those in need. But given that only 1.53 million people pay salaries tax, it is legitimate to ask how the increased spending will be funded. The chief executive's generosity also sparked an outcry from some middle-class people, who felt left out by the policy address.

Tsang's first step, phasing out giveaways such as tax rebates and rent waivers for public housing tenants, will be put to the test on Wednesday. Yet without a strong mandate and a reliable governing coalition, he'll need luck to survive a possible political backlash from almost every quarter of the community displeased by his budget.