The budget sums that don't add up

PUBLISHED : Friday, 04 March, 2011, 12:00am
UPDATED : Monday, 03 October, 2016, 5:52pm

The government, which came under huge political pressure to offer giveaways in recent budgets, may have reaped a bitter fruit from seeds it has been sowing.

A government official familiar with the administration's management of public finance, who declined to be named, said the government's over-prudent approach in drafting budgets had the unintended effect of spurring persistent calls for one-off handouts.

Treasury officials, when preparing budgets, had got in the habit of underestimating revenue, particularly non-recurrent revenue from land sales and stamp duty, while overestimating government expenditure, the official said.

'Treasury officials are not inclined to give green lights to substantial increases in recurrent government expenditure,' the official said. 'By underestimating revenue and overestimating expenditure, the government can play down public expectation of bigger recurrent expenditure.' The public, seeing a hefty fiscal surplus and no rise in recurrent expenditures on the horizon, naturally clamours for some of that cash to come back to them - fast.

The official said that when the government had detected a higher-than-expected fiscal surplus shortly before a budget's delivery, officials had usually favoured the idea of offering one-off relief measures to ease public pressure for increase in recurrent expenditure.

'Ironically, the practice creates the public expectation that the finance chief had to grant handouts in his budget speech', the official said. 'That's why the financial secretary's initial refusal to offer a tax rebate in this year's budget speech, as he did in the past few years, sparked a public outcry.'

Since February 2007, the government has handed out HK$122.3 billion in relief packages, usually consisting of tax rebates and waivers of public housing rents and property rates.

In an unprecedented U-turn, Financial Secretary John Tsang Chun-wah announced a HK$40 billion plan on Wednesday to distribute HK$6,000 cash handouts to each of Hong Kong's six million adult permanent residents.

Dr Lam Pun-lee, an associate professor at Polytechnic University's school of accounting and finance, agreed that government officials used to underestimate revenue while overestimating government expenditure - all to play down public expectation of extra recurrent government spending. He said the presence of huge fiscal surpluses had paved the ground for handouts.

Francis Lui Ting-ming, professor of economics at the University of Science and Technology, said many people would now expect continuing handouts. 'The government's fiscal reserve is forecast to reach nearly HK$600 billion next year and many interest groups will keep on pressing the administration to offer goodies,' Lui said.

He said the government should consider reducing salaries tax to ease public pressure for handouts. The revised estimate for total revenue for the 2010-11 financial year is HK$374.8 billion, HK$82.8 billion higher than originally predicted. Government expenditure for 2010-11 is seen at HK$303.5 billion, HK$13.7 billion less than originally estimated.

Tsang estimated that land revenue for the 2010-11 would reach HK$62 billion, HK$27.9 billion higher than the original estimate.

The revised estimate for government revenue for the 2009-10 financial year was HK$308.5 billion, HK$46.8 billion higher than the original estimate made in Tsang's budget speech. Revised government expenditure for 2009-10 was HK$291.2 billion, compared with the original estimate of HK$301.6 billion.

The revised land revenue for 2009-10 was HK$37.3 billion, more than double the original estimate.

Meanwhile, Fung Wai-wah, president of the Professional Teachers' Union, urged people to join the march organised by the union and other pan-democratic groups on Sunday to protest over the budget.