The fiscal reserves are our money, and they are not being properly used

The government has been miserly where money is really necessary but has wasted it on projects we do not really need

PUBLISHED : Sunday, 05 February, 2017, 2:03am
UPDATED : Monday, 06 February, 2017, 10:01am

[DAB chairwoman Starry] Lee highlighted the need for the next chief executive to stop underestimating the fiscal reserves ... “We hope the new chief executive will adjust his or her attitude towards our financial reserves and be ready to use the funds to reduce the gap between the rich and poor,” Lee said.

SCMP, February 1

I think she’s right. Our government does indeed consistently understate the fiscal reserves. It is also miserly where it could spend to good effect but often a wastrel where it does use the money.

First this matter of understatement. The blue line on the first chart shows you what our financial secretary calls his fiscal reserves. By this he means only the accumulated surpluses he and his predecessors have run up, HK$915 billion at the latest count.

What he does not include is another HK$302 billion in the savings of other statutory bodies, which there no reason to treat as less of a fiscal savings, plus HK$546 billion in investment profits.

I doubt that you ignore your own investment profits when totting up how much you are worth. All of our financial secretaries, however, have done so when reckoning the public’s savings. This odd accounting is beyond me.

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But tot it all up and, as the red line on the chart shows, our fiscal reserves come to HK$1.76 trillion, which is the equivalent of 71 per cent of gross domestic product, perhaps the world’s highest such ratio outside of some oil sheikdoms.

And it is truly straight public savings. We, the Hong Kong public, are the liabilities side of those entries in the government’s exchange fund. It’s our money.

By way of contrast, the liabilities side of Beijing’s more than US$3 trillion in its comparable foreign reserves consist of forced exactions on the deposits of the mainland’s banks.

This is not in any sense public savings. The money is owed to the individuals and corporations who made these deposits. And when our financial secretaries tell us (they are all the same that way) that we need the money to support the Hong Kong dollar’s link to the US dollar, you can treat what they say as just so much miser’s bafflegab.

Support for the Hong Kong dollar is already fully provided in the exchange fund’s balance sheet by HK$420 billion in backing for banknotes and coins plus HK$260 billion in balances owed to commercial banks. Nothing more is required by the mechanism of the peg.

But while our public savings could be used for any purpose, our government thinks only of pouring concrete. It has even made this official.

The capital works reserve fund, which holds all the income from land sales, is off limits to anything but capital projects.

It happened because a financial secretary 35 years ago got his estimates spectacularly wrong and created the fund to hide his mistakes. He is long gone. Why do we still burden ourselves with this pointless miser’s stricture?

You’re right, Starry.

We have overspent our savings in recent years on public sector construction projects that we do not really need.

There are better social uses for the money.