THIS HAS BEEN a week of appallingly mixed messages from the Government. On the one hand, we are told public finances are in dire condition and that our reserves will be wiped out unless drastic action is taken to reduce expenditure and raise revenues. At the same time, Chief Executive Tung Chee-hwa outlines plans for $600 billion worth of infrastructure projects, the bulk of the money coming from the public coffers. So what are we to believe? The report into government finances that predicted the budget deficit was likely to stay at $66 billion for the next five years and effectively wipe out the reserves; or Mr Tung's assertion that though the deficit was a problem, there was still money to spend on major infrastructure projects while reducing the gap between revenue and expenditure? There is little doubt that government finances are in a parlous state. Declining income from land premiums and investment income, a lop-sided tax system which leaves the majority of the population untouched, coupled with steadily rising expenditures on salaries and social security, have produced a fiscal time bomb. Without drastic cuts in expenditure and increased revenues through taxation, Hong Kong could, in an alarmingly short time, slip to a state of Argentinian collapse. The Government ought to be spreading the word that hard times are ahead and that serious belt-tightening is required. Instead, we get announcements about large-scale public expenditure, including perhaps on a new government headquarters, that just do not make sense. How, for example, does the increasing demand for civil service pay to be cut and their numbers reduced, square with the desire to spend money on a new government headquarters? True, part of the expenditure for some of these projects has already been included in previous Budgets, and some have already begun. But it still begs the question why there cannot be a ban on all but the most urgent projects until such time as the Government's finances have been brought back into balance. It is easy to see why it is tempting for Mr Tung to announce these large-scale projects. It helps him to promise new jobs at a time of record unemployment and gives the impression of a chief executive with vision. But at a time like this, it would be far better to preach the message of austerity and smaller government, rather than unveiling grand projects. The coming Budget - and the following three or four - will have to be fairly brutal exercises in expenditure-cutting and revenue-raising if the public finances are to be restored to a healthy state. Now that he is assured of a second term and does not really have to worry about public opinion, Mr Tung should spell out in the clearest possible terms the difficult times that Hong Kong will have to pass through before things can start to get better. This is the time to try to build a consensus on the kind of measures that need to be taken to balance the Budget. The options on new taxes, as well as the kind of expenditure cuts that need to be made, should be at the forefront of public debate at the moment, and Mr Tung should be the person leading this debate. If Hong Kong urgently requires investment in infrastructure projects, this should come from private entrepreneurs. Public money should not be used now to fund projects that private firms are unwilling to invest in. Otherwise we will wake up one morning to discover we are not Asia's world city, but Asia's bankrupt city. Thomas Abraham is the Post's Editor
