Deferring the deadline for balancing the books is a pragmatic approach for Hong Kong to deal with the budget deficit. So is issuing bonds of up to $20 billion and selling $17 billion worth of assets in 2004-2005. Giving people a respite is the order of the day, now that the economy is turning the corner.
The Democratic Party has called for deferring the deadline for balancing the books to 2009-2010 amid the economic downturn. Financial Secretary Henry Tang Ying-yen's decision to defer the deadline to 2008-2009 is a step in the right direction.
In the past two years, the Democratic Party has been advocating the issuing of government bonds to relieve financial pressures. Issuing bonds makes sense given the present low-interest environment. It also gives the government flexibility in managing its programme of selling and securitising assets.
The government has set the target for raising bonds worth up to $20 billion to fund capital spending. According to government estimates, capital expenditure will be about $100 billion in the next five years. Issuing bonds will help finance infrastructure plans, such as the plan to develop Lantau island into a tourist resort, build a logistics park and other tourist attractions.
The government's decision to issue bonds may also help boost the bond market in Hong Kong. Though Hong Kong is a major international financial centre, individual investments in bonds have not been spectacular. One of the reasons for this has been the lack of government initiative.
Experience in Singapore and Australia has shown that government initiatives in the bond market can stimulate significant growth. For that market to thrive, the government should study the feasibility of developing a variety of bond products, such as fixed-interest bonds and variable-interest bonds. Government participation in the bond market would attract individual investors and enhance the image of the Hong Kong bond market.
As for the tax proposals, Mr Tang hinted at the introduction of a goods and services tax in a few years. Many argue the government needs the steady source of revenue a GST would provide - but I beg to differ.