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Hong Kong Budget 2018-2019

Hong Kong’s restraint in budget handouts are a welcome shift

Bernard Chan lauds the significant increase in recurrent spending in areas such as health care and education. Unnoticed by most, it signals fresh thinking on the government’s part

PUBLISHED : Thursday, 15 March, 2018, 9:40am
UPDATED : Thursday, 15 March, 2018, 6:33pm

Financial Secretary Paul Chan Mo-po’s budget has received a fairly mixed response. The good news is that nearly everyone welcomed at least some of it. But there was also quite a lot of criticism.

The impression I get is that a lot of people were disappointed by the budget as a whole. And officials are perhaps also disappointed that the plan did not get a warmer welcome. If that is the case, it is a mismatch in expectations. Officials thought the plan represented a bold shift in direction, while critics complained that it was too similar to the budgets of previous years under John Tsang Chun-wah.

On the revenue side, we saw yet another massive overshoot in the budget surplus forecast. While most governments would envy this, many taxpayers, businesses and economists see these huge surpluses as a problem. This wealth could have remained in the economy and gone into investment or consumption.

Why having too much money can be a problem – just ask Hong Kong’s financial chief

If officials were planning these surpluses on purpose, critics would have a point. However, our financial officials do not see them as normal. They are the direct result of booming property and stock markets, generating very high land premiums and stamp-duty revenues. Most observers accept that 10 years of ultra-low interest rates have led to asset price inflation worldwide. At some stage, it will deflate. Hong Kong’s budget surpluses could decline sharply.

If that does not happen, our officials would need to accept that these excess revenues are structural. The next few years should show us.

To most of the community, the expenditure side of the equation is the interesting part. It is this side of the budget that pleases people or makes them angry. And public opinion tends to be strongest about the smallest expenditure items – the handouts.

Quality counts when it comes to Hong Kong handouts

This year, taxpayers get a rebate, elderly and welfare recipients get another two months’ allowances, and students in need get HK$2,000 each. In previous years, the recipient groups and sums have varied. In 2011, every adult permanent resident got HK$6,000 – and some asked for a repeat of that this year.

These discretionary handouts come in for criticism. The argument is that we should identify where resources are most needed and then focus expenditure on a recurrent basis in those areas.

Critics blame officials for scattering wealth around, as if at random

Critics blame officials for scattering wealth around, as if at random. The fact is that officials are responding to pressure. Every year, organisations and groups lobby the government for specific measures to enable their favoured groups to “share the wealth”. It might not be good fiscal policy, but the public has come to expect it.

The community pays less attention to some of the larger initiatives. For example, this year’s budget allocates an additional HK$660 million to improve rehabilitation services for the disabled, and recovering mental health patients, HK$500 million to support ethnic minorities and over HK$220 million to strengthen care for children and disadvantaged youths. These measures should make people’s lives better, but did not make headlines.

Other initiatives go into long-term investment in our future economic development, such as in nurturing innovative and creative activities.

Hong Kong’s budget funding for innovation is a smart start

Last but not least, the financial secretary increased recurrent spending in some areas, including health and education. The Hospital Authority received a HK$6 billion-a-year boost, and education got a further HK$2 billion. This is a contrast with the last administration’s caution in raising such expenditure.

People hoping for a big, radical overhaul did not find one in this budget. But, in resisting pressure for too many discretionary allowances, the financial secretary will hopefully lower expectations for continued one-off handouts. And the increased spending in vital areas like health care is a sign of fresh thinking. We should welcome this budget as a good first step.

Bernard Chan is convenor of Hong Kong’s Executive Council