Hong Kong finance chief says calls to loosen purse strings are ‘nothing new’, and he will ‘spend on what should be spent on’
Financial Secretary Paul Chan Mo-po responds to comments by a former central banker that budget deficits can be tolerated if spending boosts the economy
Hong Kong’s finance minister on Saturday said comments made by a former central banker that the city’s “miserly” fiscal philosophy of the past decade should be abandoned were “nothing new”, and he would stick to “spending on things that should be spent on”.
Financial Secretary Paul Chan Mo-po was responding to a personal blog post on Thursday by Joseph Yam Chi-kwong, a former head of the Hong Kong Monetary Authority and now a member of the Executive Council, which advises Hong Kong’s leader.
Yam said the public purse strings should be loosened to spur the economy even if the increased spending led to budget deficits.
Chan’s response was in line with similar remarks made on Friday by Hong Kong leader Carrie Lam Cheng Yuet-ngor, who said she was prepared to reject the long-term fiscal strategy set out for the city by the previous government and be “bolder” with public spending. Lam took office on July 1.
Article 107 of the Basic Law, Hong Kong’s mini-constitution, requires the city to “follow the principle of keeping expenditure within the limits of revenues in drawing up its budget” and “to strive to achieve a fiscal balance [and] avoid deficits”.
Chan, speaking on a radio programme on Saturday morning, said he agreed that a balance should be struck over the course of economic cycles rather than simply year by year. He had outlined a similar argument in his budget for the city in February, he said.
“As financial secretary, it is my duty to make good use of the surpluses when there are surpluses,” Chan said. Spending in the next five years was expected to increase, he added.
But he said it was not practical to stipulate a fixed percentage of gross domestic product be put towards government spending.
Chan also reiterated that it was not the time to drop the property cooling measures and warned the public of the risks in the market.
Asked if he and his fiscal principles had been sidelined Lam, Chan said: “We must have the capacity to humble ourselves to listen to different views so that we can have a better gauge of the expectations and the wisdom of people, so as to better our work.”
On Yam’s belief that the approach of past administrations had placed a drag on economic development, Chan said he believed former financial secretary John Tsang Chun-wah, who left office in January, had his own fiscal philosophy.
Meanwhile, Chan reiterated that it was not the time to relax property cooling measures and warned the public of the risks in the current property market.
Chan was also quizzed about a proposal put forward by Lam in her election manifesto earlier this year to introduce a two-tier profits tax system for businesses in Hong Kong. He said a plan had since been put together that would result in tax revenues being reduced by an estimated HK$5 billion to HK$6 billion.
Lam’s manifesto proposed lowering the tax rate for the first HK$2 million of a company’s profits from the current 16.5 per cent to 10 per cent.