Short of a budget deficit shock, here’s how to ensure Hong Kong spends money more wisely

Philip Bowring says years of huge surpluses have allowed government incompetence to continue unchecked, wasting money on needless capital investment. With budget season coming around again, here are four measures to improve this year’s plan

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Four measures are needed in this budget to increase recurrent revenue to support socially desirable measures in the short term and a stable fiscal situation in the longer term. Photo: AFP

Philip Bowring

Philip Bowring has been based in Asia for 39 years writing on regional financial and political issues.

Published: 2:00pm, 13 Jan 2019Updated: 2:06pm, 13 Jan 2019

Time is approaching for the financial secretary to unveil his 2019-20 budget for Hong Kong. It will, as usual, appear cautious, probably suggesting a surplus but less than his forecast of HK$46 billion (US$5.9 billion). Let us hope, however, that for once he proves overly optimistic and that, one year from now, there is the prospect of a HK$30 billion deficit.

This is not the hope of either a frustrated pessimist or the holder of a short position on the Hong Kong market. It stems from the need for Hong Kong’s public finances to escape from the drug of overpriced land. The government will never do anything itself in that direction, notwithstanding promises of increased land supply. It is hooked, to the detriment of the economy and society.

Thus, a sustained fall in land prices, particularly if brought about by higher real interest rates, may finally shake up a government which, for most of the past two decades, has used land-related revenues (stamp duties and a share of profits tax) as a cover for fiscal incompetence. Stable, recurrent revenues from income and profits tax and rates have been slashed, mainly for the benefit of the top 30 per cent of households.