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SCMP Reporter

A week before Financial Secretary Donald Tsang Yam-kuen delivers his second Budget, a Chinese official already had set the tone for what we can expect next Wednesday.

  Chen Zuo'er , Chinese leader of a Joint Liaison Group expert team, described it as a 'prudent and moderate Budget that strikes a balance of the interests of all sides'.

  Recently, budgets have supposedly been a compromise between factions representing vested interests relating to how social resources should be distributed.

   But this year's fiscal blueprint is more a 'balance of interests' between the departing and the future sovereigns at the end of 19 rounds of secretive talks.

  It was little surprise if each side viewed the other's motives with suspicion and scepticism before the first round of expert-level talks in 1995.

  At one of the early rounds of talks late that year, Mr Chen caught unawares his British-team counterpart, Secretary for the Treasury Kwong Ki-chi, with a striking warning.

  The scenario of runaway spending on welfare would, if not stopped, be similar to a uncontrolled Formula One racing car, said Mr Chen. It would crash and kill the occupant.

  Obsessed with fears that the British colonial rulers might empty the territory's treasury before the handover, Chinese officials also were worried that the trend, if not arrested, would unleash pressure for more welfare demands in the lead-up to the handover - and afterwards.

  Conspiracy theorists warned against the sunset administration using taxpayers' money to win goodwill from the community by being more generous in giving welfare handouts and tax cuts.

  Against such a background, the Patten administration had little room for manoeuvre over the last Budget under British rule.

  A caretaker Budget should therefore cause few surprises.

  Though budgets have traditionally been linked to the annual Policy Address, this one will have little connection to the Governor's farewell speech last October.

  As Secretary for the Treasury, Kwong Ki-chi acknowledged on Thursday, officials in charge of formulation of the Budget had not 'co-ordinated' with the Policy Address when they decided on resource allocation for the 1997-98 year because this was a 'unique year'.

  As with the Policy Address, Mr Tsang's state-of-the-economy address on Wednesday is unlikely to offer major new initiatives or shed light on the Government's strategy on economic development.

  Understandable as this may be to both government and Chinese officials, the 'uniqueness' of this Budget is not reason enough to justify its conservative approach.

  The modest, if not token, increase in spending on priority areas such as welfare, housing and education that were contained in the expenditure blueprint on Thursday reflected the mentality of the top echelon of the administration and the mainland officials handling Hong Kong affairs.

  At a sensitive time, prudence and steady-as-it-goes are the cardinal principle. The aim is simply to keep the vehicle moving steadily and on course, while waiting for the new driver to take his seat.

  But to the man in the street - in fact, to many throughout the community - the political and constitutional complexities incurred by the handover are no excuse for inaction on a range of pressing social and economic issues.

  Calls for new government initiatives are likely to grow in view of the rosy forecast for the economy, as well as other recent economic data.

  In his prelude to the Budget, Mr Tsang has already promised 5.5 per cent economic growth in the handover year - an immediate recovery from a slight downturn last year.

  His forecast of a modest surplus of $1.6 billion in his maiden Budget last year will be proved wrong next Wednesday with yet another pleasant surprise of a higher-than-expected level of surplus.

  It is estimated that the surplus will grow to between $25 billion and $30 billion, thanks to frenzied transactions in property and stock markets over the past six months.

  Legislators from rival groups are likely to join ranks in calling for major improvements in payments to the elderly under the Comprehensive Social Security Assistance (CSSA) scheme, and for major tax cuts. But Mr Tsang can hardly be allowed to become Mr Generosity on Wednesday.

  So the pressure for improvements on livelihood matters will be transferred to the leader-in-waiting, Tung Chee-hwa.

  Mr Tung and his top advisers will also face the high expectations from the community at large that the first SAR government will introduce concrete initiatives to tackle a range of longstanding problems.

  According to findings by the Hong Kong Policy Research Institute, established by Mr Tung's Special Adviser Paul Yip Kwok-wah, the new Government taking over at the end of the colonial era will be expected to introduce new social policies.

  The think-tank, in an article, explained: 'When there is a discrepancy between their expectations and reality, elements of confidence crisis will breed.

  'After the handover, there will be fewer discussions about vague political concepts such as 'one country, two systems' and a high degree of autonomy. Whether people feel there are improvements in the quality of life will be the major factor that affects confidence.'   Mr Tung - in an interview with CNN last week - apparently agreed with the assessment when he cited surveys which suggested people were more concerned about issues such as housing and livelihood than with political liberty.

  Any failure to address social and economic issues runs the political risk of undermining confidence in Mr Tung and his ruling group in the early stages of the SAR.

  Faced with raised expectations for the Government to do more, Mr Tung will be under strong pressure to make immediate improvements on such issues as elderly welfare when he takes the oath on July 1. He simply cannot wait until next spring when the Financial Secretary delivers the SAR's first full Budget.

  The rosy economic forecast and a huge surplus windfall represent both good and bad news for Mr Tung.

  The bad news is that he will find it more difficult to argue for the need to be more prudent in the management of the SAR's huge reserves. The higher the expectation, the greater the pressure for him to do more.

  The good news is that there will be enough money for him to be more generous to the needy and to embark on ambitious social and economic development programmes.

  Being seen to be more active and aggressive will be crucial for Mr Tung in establishing his authority and securing public support in the first year of his rule. And the signs are that neither the present administration nor Chinese officials want to steal his limelight.



The politics of money