Financial Secretary John Tsang Chun-wah yesterday treated us to the by now familiar game of appearing to be generous by doling out "sweeteners" in his budget while at the same extracting more than he needs to from people's pockets.
The sweeteners have become an essential element of Tsang's budgets ever since he was forced into that embarrassing climb down in 2011 after sharp public protests and gave everyone HK$6,000.
However, this year was sweeter than most, amounting to HK$34 billion, which is a 70 per cent increase over last year.
Given the government's unpopularity and the raw mood of the public post-Occupy, you don't have to be a rocket scientist to understand the thinking behind this move.
Indeed it was more or less the unstated main theme of the budget. Last year's giveaways were announced in paragraph 145 of the budget speech; this year's good news was elevated to paragraph 26.
There was less emphasis this year on phony scare stories like Hong Kong's ageing problem. The population may be ageing but it is not necessarily a problem. Tsang came in for some criticism last year over the great play he made of spending on infrastructure while uttering dark threats about having to raise taxes to pay for the elderly. He is still spending on infrastructure, although not making such a big deal of it.
Despite the huge increase in giveaways, they won't make much of a dent in government finances since the windfall HK$29.7 billion from stamp duty will have accounted for most of that HK$34 billion.
But the big problem Tsang has faced for many years is how to disguise the government's enormous flows of cash. It's a slightly bigger problem this year due to the bigger than usual miscalculation of the size of the budget surplus, which rose from an estimated HK$9.1 billion to HK$63.8 billion.
This year, recurrent revenue is estimated at HK$477.6 billion while recurrent expenditure is HK$324 billion, which leaves a recurrent surplus of HK$157 billion. This is the surplus left over after paying HK$71 billion for education, HK$60 billion on social welfare, HK$54 billion on health and HK$20 billion on infrastructure.
Even after paying out HK$34 billion on sweeteners, that still leaves HK$123 billion, which would comfortably cover the HK$53.8 billion in salaries tax should the government opt to forego it. That would cheer up the middle classes.
Tsang makes great play of the fact that recurrent expenditure has increased 73.4 per cent over the past 10 years. But he is still taking more out of people's pockets. Last year, he was talking about the fiscal reserves reaching HK$755 billion, about 34 per cent of GDP and equivalent to 22 months of government spending. This year, he is forecasting fiscal reserves of HK$856 billion, equal to 36.8 per cent of GDP or 23 months of government expenditure. So he is taking more out of the economy.
Even this figure understates the extent of Hong Kong's riches, which can be seen by comparing the cash-based accounts with the accrual-based accounts. The government released this comparison in December last year, stating: "Compiled on the basis of actual cash revenue and expenditure within a financial year, the cash-based accounts serve mainly to demonstrate that public money has been paid within the limits and ambits approved by the legislature. The accrual-based accounts … aim to present more information on the financial performance and position of the government."
Thus on a cash basis, the fiscal reserves for 2013-14 stood at HK$755.7 billion, but on an accrual basis, which many would argue presents a more accurate picture, they were HK$1.5 trillion.
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