Hong Kong’s public coffers offer a golden opportunity for chief executive candidates

Raymond Mak says bulging fiscal reserves offer top-job aspirants the opportunity to present a comprehensive set of public finance principles and policies, to show their commitment to improving livelihoods and restoring social stability

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Protesters carry effigies of declared and then-potential chief executive candidates (from left) Woo Kwok-hing, John Tsang, Carrie Lam and Regina Ip, during a pro-democracy march in Hong Kong on January 1. Photo: Reuters

Published: 12:03pm, 24 Jan 2017Updated: 8:53pm, 24 Jan 2017

The candidates seeking to be Hong Kong’s next chief executive are gradually lining up. Given the current social and political challenges, gaps can be expected between campaign promises and what the winner eventually delivers. If the next chief executive is determined to mend fences, stabilise society, rebuild trust and gain public support, he or she needs to take a more practical and achievable route – devising and implementing policies to improve the economy and alleviate hardship for citizens. In making real promises, the effective use of public funds is key.

All declared candidates are well aware of the ever-growing demands for public housing, education, health care and retirement protection

Article 107 of the Basic Law stipulates that the government shall keep expenditure within the limits of revenue in drawing up its budget, and strive to achieve a fiscal balance. Thus, public finance management has additional limitations because major sources of revenue, like profits tax and land revenue, are highly vulnerable to economic fluctuations.

All declared candidates are well aware of the ever-growing demands for public housing, education, health care and retirement protection, and have proposed various sets of policies in response.

However, no one seems to have addressed the corresponding public finance issues: how much funding do we need? Where will the money come from? Should the government open up revenue streams? Should it cut expenditure in other policy areas? Should the government continue giving away one-off sweeteners? How should it allocate resources fairly?

Hong Kong has been running successive years of budget surplus since 2004. Our current fiscal reserves level ... is excessive

Without answers to these questions, the chances are that campaign promises will prove to be empty pledges.

Therefore, aside from presenting his or her vision for Hong Kong, the ideal next chief executive should also be able to illustrate and deliver a comprehensive set of public finance principles and policies.

Hong Kong has been running successive years of budget surplus since 2004. Our current fiscal reserves level is 35 per cent of GDP, or 21 months’ government expenditure, which is considered excessive: the fiscal reserves of the US and major European countries such as the UK, Germany and France are below 2.5 per cent of GDP; while that of some developed Asian countries, such as Japan and South Korea, are below 20 per cent.

Chief executive candidate John Tsang Chun-wah talks to elderly residents during a visit to a public housing estate in Wong Tai Sin. Photo: Facebook

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The next government should consider adjusting the fiscal reserves level down to an amount equivalent to 12 months’ expenditure, considered to be sufficient in meeting operating and contingency requirements by the then financial secretary back in 2002, when Hong Kong was recovering from the Asian financial crisis.