Alarm bells over fiscal deficits put focus on severe case of overkill
I HAVE A friend who makes a hobby of hunting and poking around obscure documents posted on the government's website. The other day he came up with a gem that suggests our government's fiscal policy is too tight. It is a little out of date but still relevant.
Let me explain the background here. When our government compiles its accounts it does so on a cash basis. In other words, it tallies only the cash that comes in and out and does not bother with income due but not yet received or expenses due but not yet paid. Nor does it bother with a balance sheet. This is the simple way of doing things, the mom and pop grocery store way.
But corporate accountants have long ago treated this as inexact and likely to create a false picture of financial position. They use a method called accrual accounting, which can be defined as a matching of revenues and expenses at the time that transactions occur rather than when payment is received or made. It is more difficult to do than cash accounting but it presents a more accurate picture.
Governments across the world are now slowly moving to accrual rather than cash accounting and ours, being a dedicated follower of fashion, decided some years ago that it would join the trend, step by step, with the object of presenting its accounts in both accrual and cash form.
The document my friend sent me was the result of the initial attempt at accrual accounting for the fiscal years to March 2003 and 2004. It is only a partial one as it does not include depreciation of government-owned fixed assets. This will be included in the accrual accounts for only the 2005 fiscal year, which are not yet ready.
But the figures indicate that the deficits for the 2003 and 2004 fiscal years, a period in which we worried about our deficits, were much less than the cash basis of accounting said they were.
The chart tells the story. It shows you a rolling 12-month total of the deficit on the consolidated account after taking out $26 billion in debt issue proceeds in July 2005 (it was another flaw of cash accounting to include them).
You can see what the cash accounting figures for the 2003 and 2004 fiscal balance were by the words 'cash' and the buttons beside them. Now look at the word 'acc' and accompanying buttons. These are what accrual accounting said the fiscal balance was in those years. It is quite a difference.
Do you remember all that talk two years ago about how our government had to be tight with its money because of the deficit danger? Of course it was never tight at all with its pet projects but that is another matter. The point is that it never had to be all so tight in the first place. Our fiscal position was much better than the cash accounts said it was.
I SEE HONGKONG POST has finally admitted that its e-cert system for secure electronic certification of internet transactions has been a flop because so very few people use it.
I must confess that I am among the majority here. I signed up for e-cert when I got my new ID card because I was told it would do all kinds of wonderful things for me. Trouble is, I never did quite understand what all those wonderful things were and I still do not. The pamphlets only confused me and I know that I have plenty of company here.
Of course, I also admit to being a bit of a digital age dinosaur. I do not understand a fraction of the things my son gets up to when he is online. All I can say is that Hongkong Post shows signs of being that kind of dinosaur too.
Aside from embedding my personal e-cert in my ID card, they sent me a floppy disk with yet more wonderful e-cert things on it. I do not have a floppy disk drive on my computer, however. I know few people who do any longer. I have a CD drive and otherwise I use the internet to download what I want. That floppy disk was useless to me.
Perhaps at some time I shall regret not making use of my e-cert and thus being one of the people who forced Hongkong Post to abandon it as a money loser that the private sector too probably now will shun. But that still leaves me with my present question.
Just what was this thing supposed to do for me?
