Inside track
FOR YEARS, hoarding a huge - and usually increasing - level of fiscal reserves has been an article of faith as far as the Government is concerned. There have been many warnings about the supposedly terrible consequences for Hong Kong's economy of tampering with this huge cash stockpile, which now runs to $407 billion.
But never underestimate the capacity of a leopard to change its spots. Or in this case, the ability of top government officials to eat their words, recanting their many previous strident pronouncements on the issue.
So if, as seems increasingly probable, the October 10 Policy Address sees Chief Executive Tung Chee-hwa respond to the current economic crisis by indicating the Government is now prepared to dip into its reserves in order to invest in Hong Kong's future, then expect Chief Secretary for Administration Donald Tsang Yam-kuen and his colleagues to be among the loudest in singing the praises of such a major policy change.
Never mind that as recently as March's budget, Mr Tsang, the then-Financial Secretary, was still issuing dire warnings about the damage running down the reserves would inflict on fiscal prudence and international investor confidence. Or that it was Mr Tsang who earlier devised elaborate criteria to justify reserves of up to $500 billion, criteria which even close aides admitted were based on a spurious link with the narrow M1 measure of money supply.
But times have changed. The Government just about got away with persuading the community of the need for such a huge stockpile during the 1998 recession caused by the Asian financial crisis, when the reserves arguably played some part in seeing off the attack on the Hong Kong dollar by international hedge funds.
Yet there was never any prospect of the Government pulling off the same trick again as the SAR heads for another recession, with no sign this time that the local currency is under threat. That was clear on Friday, when the immediate reaction to dismal economic-growth figures - which saw the forecast for the year slashed to one per cent - were demands from across the political spectrum for the Government to dip into its reserves.
Equally crucially, Hong Kong now has a Financial Secretary who does not seem to share Mr Tsang's passion for large cash stockpiles. In a radio interview yesterday, Antony Leung Kam-cheung - who took up the post in May - reiterated earlier hints the Government might soon use some of the reserves to invest in such areas as education and infrastructure to help Hong Kong through its economic restructuring.
But he also told RTHK listeners that he opposed using the reserves to distribute money that would only have a 'temporary effect' - such as the much-talked about idea of a tax rebate. After all, this was tried in 1999 when Mr Tsang, for all his rhetoric on fiscal prudence, boosted the budget deficit to fund an $8.5 billion tax rebate. And since that failed in its goal of boosting consumer spending, there is no reason to suppose the same tactic would work now.
In today's more political environment, it was always inevitable the Government would have to respond to popular pressure for the reserves to be spent. And Mr Leung is right to see this as a one-off chance to invest the fruits of past economic success in trying to build a better future for the SAR.
But to fritter away even part of the reserves on a quickly forgotten tax rebate, though it might boost the Government's sagging popularity, would represent a squandering of this unique opportunity.
Danny Gittings is the Post's Editorial Pages Editor
