Paul Chan’s surplus plan leaves Hong Kong analysts mixed on his fiscal approach
Funds allocation seems to differ from John Tsang’s conservative stance, but critics say it may not really count as form of investment
Chan also promised to more accurately project land revenue by basing it on the average proportion of land revenue to the city’s gross domestic product over the past 10 years – the resulting figure of 3.3 per cent of GDP is seen as “more aggressive”. Tsang had been criticised for his underestimation of the revenue, which was based on a lower average percentage over the past 30 years.
These statements from the financial chief drew mixed views, with some economists acknowledging that Chan has distinguished himself from Tsang, while others remained sceptical.
Explaining his ideas on fiscal policy on Wednesday, the accountant-turned-minister identified his “three objectives of public finance” – developing the economy and improving people’s livelihood, investing for the future, and sharing the fruits of success.
On investment, Chan proposed earmarking HK$30 billion to strengthen elderly services and rehabilitation facilities, HK$20 billion for sports development, and HK$10 billion for supporting technological development.
Another HK$35.1 billion of the surplus will be spent on various sweeteners for both the lower and middle-income classes.
Asked why he was not investing any part of the surplus in the Future Fund, which was created by Tsang as a safeguard against future financial woes, Chan said he believed the newly directed amounts were “well spent”.
The Future Fund was established last year, after Tsang’s working group on long-term fiscal planning proposed its creation from HK$220 billion in the existing land fund and one-third of the government’s annual budget surplus.
Officials expected the fund to grow to HK$510 billion in 10 years, assuming an annual return of 5 per cent, but its investment returns from the Exchange Fund – the reserve used to defend the Hong Kong currency peg to the US dollar – were lower then expected last year, averaging around 3 per cent per annum.
As Chan is talking about social investments, he should be seeking to enlarge Hong Kong’s GDP and its social capacity
Article 107 of Hong Kong’s mini-constitution, the Basic Law, states that the city shall keep “its expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance”. But in recent years, Tsang was repeatedly criticised for following the rule too strictly.
On that principle, Chan said “It is most important to spend only when necessary ... and strive for an overall fiscal balance over time.
“Public expenditure in the 2017-18 financial year will be 20.4 per cent of Hong Kong’s GDP, compared with 21.2 per cent estimated by John Tsang in the 2016-17 budget.”
Billy Mak Sui-choi, an associate professor at Baptist University, told the Post that while Chan differed from Tsang in how he allocated part of the surplus for elderly care and sports, it was arguable whether the proposal could be described as an “investment” at all.
“As Chan is talking about social investments, he should be seeking to enlarge Hong Kong’s GDP and its social capacity,” Mak said.
But he also added that he was not worried about whether Chan’s budget could be sustained by the next administration, which will take office in July.
In contrast to Mak’s views, Duncan Innes-Ker, regional director for Asia at research firm Economist Intelligence Unit, said: “Few people will notice much difference between Paul Chan’s budget and those of his predecessor. The government continues to take a cautious approach to spending the huge fiscal surplus that the territory has built up.”
