John Tsang’s defence of budget giveaways fails to add up
Hong Kong financial secretary claims his relief measures have spurred economic growth, but in reality only the rich have truly benefited
Ahead of his annual budget release today, finance chief John Tsang Chun-wah has defended his much-criticised sweeteners or one-off giveaways. He claims his relief measures have spurred annual domestic economic growth by 1 per cent.
Leaving aside the wisdom or rather the wastefulness of it, it’s funny that few people question how he arrived at this figure. He then makes a further claim that this “1 per cent” serves the important purpose of stimulating the local economy in the face of weak global growth.
“Don’t underestimate the 1 per cent,” Tsang wrote. “It has played an important role in stabilising the local economy and labour market.
“Hong Kong needs domestic consumption to drive the overall economy, especially when world economic growth remains weak.”
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That’s two claims for which he has offered zero evidence in support. I am no economist but it’s well known that when you put extra cash in the hands of poor or low-income people, they spend it quickly.
But it doesn’t make much difference when you give it to the rich or well-off.
Here’s the thing. Despite the myth, which the government has helped cultivate, that sweeteners benefit the poor, most of the free money has gone to the propertied class.
Since Tsang became finance chief in 2007, he has underestimated revenue by a total of HK$582 billion. As one-off sweeteners, he has given back HK$220 billion up to 2014.
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Of that amount, according to the Legislative Council Secretariat’s research unit, 28.7 per cent went to property owners and 23.5 per cent to taxpayers. Only 3.9 per cent was given to low-income groups and another 7.6 per cent to disadvantaged groups. So Tsang has directly subsidised the segments of the population that needed the least welfare support, primarily through rates waivers and property tax reductions. The extra cash means little to well-off people and makes little or no difference to their spending patterns.
It’s widely reported that Tsang will scrap waivers for public housing rent, a relief measure that has been in place since 2008 and cost HK$1.1 billion in this financial year.
Local economists should run up the numbers on Tsang’s sweeteners. Then we will see if they really stimulate anything or just raise the opportunity costs for the community by being wasteful.