A prudent budget but we need to plan for the long term
Public spending is under control but the government must broaden the tax base and prepare fiscal measures to address the shrinking workforce
Financial Secretary John Tsang Chun-Wah yesterday announced a revised budget surplus of HK$63.8 billion for the 2014-15 financial year, compared with the original estimate of HK$9.1 billion.
The enormous surplus was primarily attributable to the record-high stamp duty collected as a result of extra levies to rein in property prices, the buoyant property and stock markets and increased revenue from profits and salaries taxes.
The surplus would have reached the even more staggering level of HK$91.3 billion had not HK$27.5 billion been set aside for the Housing Reserve Fund.
The government projects a budget surplus of HK$36.8 billion for the 2015-16 financial year, compared to the previous forecast of a HK$28 billion deficit. Overall, the 2015 budget is prudent and aims to maintain fiscal discipline.
As birth rates remain subdued and life expectancy grows, an ageing population, shrinking workforce and the narrow revenue sources for the government present sustained challenges to Hong Kong's finances. Hong Kong's key revenues, namely profits and salaries taxes, land sales, stamp duties and investment income, are highly volatile and vulnerable to economic fluctuations and cycles.
Furthermore, Hong Kong's ageing population is set to significantly increase government spending on supporting the elderly.
The "0 1 1" envelope savings programme has been launched to contain government expenditure growth.