LettersWhy the austerity argument against Carrie Lam’s Lantau Tomorrow Vision doesn’t hold water

Name: Hong Kong budget offers HK$10,000 handout to permanent residents as part of relief measures
Uploaded: 2021-01-17T23:25:15.000Z
Duration: 2 min 3 s
Description: Hong Kong budget offers HK$10,000 handout to permanent residents as part of relief measures

Contrary to what deficit hawks have argued, an economy doesn’t work like a household. Building infrastructure is not consumption, but an investment. It would create jobs and opportunities

2-MIN READ2-MIN

The Lantau Tomorrow plan envisages building artificial islands off Lantau, near Peng Chau (middle) and Sunshine Island (back left). Photo: Martin Chan

Letters

Published: 7:25am, 18 Jan 2021Updated: 7:25am, 18 Jan 2021

The 2020-21 Hong Kong budget predicted that the government would run its first fiscal deficit in 15 years, at HK$139.1 billion. With the roll-out of the HK$200 billion Anti-epidemic Fund, the actual figure is likely to be even higher. However, Chief Executive Carrie Lam Cheng Yuet-ngor is still determined to push ahead with her Lantau Tomorrow Vision initiative, which was first proposed in her 2018 policy address.

Here, I will not discuss whether this initiative would be damaging to the environment, but will only focus on countering the argument that the project should not be pursued because it would cost nearly half of the city’s fiscal reserves, leading to an unsustainable budget.

Austerity was the norm in the aftermath of the 2007-8 financial crisis. While Britain decreased its welfare expenditure by £30 billion, Greece went even further and introduced multiple austerity packages. These policies could be explained by the Swabian housewife metaphor put forward by German Chancellor Angela Merkel: if you need to put your house in order, you must tighten your belt today to repay the debt you accumulated yourself.

However, is this the right mentality for a government?

02:03

Hong Kong budget offers HK$10,000 handout to permanent residents as part of relief measures

Paul Krugman has argued that when there is a drop in investment (as is now seen with companies, especially in the commodities and consumer goods sectors, taking a more conservative approach to expansion), there will be a drop in tax revenue from sources such as stamp duty and corporate tax. This will lead to government expenditure – which remains largely unchanged – exceeding government revenue, and thus result in a fiscal deficit.

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Contrary to what deficit hawks have argued, an economy doesn’t work like a household. Building infrastructure is not consumption, but an investment. It would create jobs and opportunities

Contrary to what deficit hawks have argued, an economy doesn’t work like a household. Building infrastructure is not consumption, but an investment. It would create jobs and opportunities