Editorial | Balancing of books calls for hard choices amid Hong Kong’s deficit woe

The ongoing government budget consultation is a good opportunity to tap into collective wisdom on tackling a worse-than-expected deficit. It may also become a way to manage public expectations and shape opinions on some hard choices. With a surplus unlikely to return any time soon, Financial Secretary Paul Chan Mo-po is walking the tightrope of raising revenue and cutting spending amid a fragile recovery. A careful balance must be struck so the public and the economy will not suffer further.

We trust the finance chief will continue to be in a listening mode when he hinted at charging more for some public services to help balance the books. Writing in his weekly blog, Chan said appropriate revenue increases would be essential. “For instance, some public service charges have not been adjusted for many years; others under the ‘user pays principle’ are also far from cost recovery. It is perhaps time for a review,” he said.

His remarks came a day after two public engagement sessions on government priorities. Some citizens expressed concern over the narrow tax base, which inevitably adds to the burden of public finance amid economic uncertainties. Others lamented how those who cross the border to spend receive better value for money, referring to the growing trend for Hongkongers to go north for shopping and entertainment.

Some government fees and charges have been frozen for years. For example, water tariffs were last adjusted in 1995 and remain among the world’s lowest, despite a new multibillion-dollar supply deal with neighbouring Guangdong. There were also concessions on water tariffs and sewage charges for non-residential users during the Covid-19 pandemic.

But while there appears to be room for adjustment, to what extent is another matter. Expected revenue from fees and charges as well as utilities in 2023-24 is only HK$21 billion, accounting for less than 4 per cent of the total. When other sources such as dutiable commodities, government rent and vehicle first registration tax are considered, however, the charges become a major revenue category, along with the more volatile income from profits tax, land sales and stamp duties.

The prevailing financial woe means some hard choices will have to be made. It is good to hear the government assure that public services will continue to be accessible to all and the city’s economic competitiveness will not be undermined. While the public may expect some unpopular measures ahead, it is important that all revenue options and any proposed spending cuts be assessed carefully, taking into account their impact on individuals and society.