EditorialNew relief funds call for greater prudence
- With more help pledged to see firms through the latest Covid-19 wave, the government has to ensure it goes to those who actually need it
Financial Secretary Paul Chan Mo-po used his weekend blog to warn that the city’s soaring spending could eventually compel the government to consider new ways of raising money, including higher taxes.
Two days later, the fourth surge of the Covid-19 pandemic prompted the government to reimpose tough anti-infection measures that will once again hurt businesses and cost jobs. Acknowledging this, Chief Executive Carrie Lam Cheng Yuet-ngor said she and Chan would discuss providing firms with help to weather the latest storm.
In light of Chan’s warning about spending, they will have to take into account the impact of further outlays on a ballooning budget deficit exceeding HK$300 billion, not to mention depleted fiscal reserves – Hong Kong’s famously deep pockets for a rainy day.
The pandemic has taken a heavy financial toll. That said, the HK$120 billion relief measures announced in the last budget, plus three rounds of measures since then, were all one-off spending that will not cause a long-term financial burden. An underlying issue is the budget principle in the Basic Law of keeping expenditure within the limits of revenues.
Growth in annual recurrent spending, as opposed to one-off capital investments, of 25 per cent over the past three years to HK$486.6 billion in 2020-21 has tested that virtue. Given that the government’s policy options are limited by the city’s currency peg to the US dollar, Chan says sound government finance is an important tool to stabilise market confidence. The further relief measures to be considered by Chan and Lam must take account of such prudent sentiment.
That said the government faces a choice between further generous relief measures, which risk benefiting undeserving businesses that profit from Covid-19 restrictions, and a more targeted approach that could nonetheless miss deserving cases. Given the government’s finances, including a HK$250 billion hit over six months to October that left fiscal reserves at HK$850 billion, it is time for diligent prudence.