Date
22 July 2017
Paul Chan stressed that the government's spending plan should not be based on highly volatile revenue such as land sales receipts. Photo: HKEJ
Paul Chan stressed that the government's spending plan should not be based on highly volatile revenue such as land sales receipts. Photo: HKEJ

Why Paul Chan’s ‘underwhelming’ budget should get more applause

Financial Secretary Paul Chan Mo-po seems to have taken a U-turn in his stance on the budget after assuming the post on Jan. 16.

In a blog post on Jan. 22, Chan appeared determined to bring about changes, pledging that he would “flexibly utilize public resources to address the needs of different sectors” to ensure “various sectors of society benefit from economic growth”.

But two weeks later, he changed his tone. In a blog post on Feb. 5, he stressed that the administration needs to think about macroeconomic conditions, and hinted that the budget should follow the principle of “committing resources only where justified” and launch “balanced and appropriate measures”.

When Chan unveiled his first budget on Wednesday, many, not surprisingly, felt disappointed.

The financial secretary has resisted the temptation to offer more handouts.

Instead, he decided to follow the conservative approach of his predecessor John Tsang Chun-wah by earmarking most of the huge surplus for long-term interests.

In fact, Chan has delivered a sensible budget. It has followed the principles of keeping expenditures within the limits of revenues, and committing resources only where justified.

As a former accountant, he surely understands how important these basic rules are.

The current administration has just four months left, so it’s unfair for the public to expect drastic moves from Chan.

Had he decided to hand out more sweeteners in response to the public’s high expectations, he would have committed an irresponsible act.

His conservative stance is quite appropriate, even though the government’s finances again performed far better than expected.

As Chan explained, the budget surplus ballooned indeed, but it’s largely due to a significant increase in land sales revenue, which by its very nature is quite sensitive to market cycles.

Conservative though the 2017-2018 budget may be, it doesn’t follow that the next budget will be adopting a similar approach.

In fact, with a new administration on board, the government is likely to take a more proactive role.

Even former financial secretary John Tsang, who is now running for chief executive, admitted that the idea of “positive non-intervention” no longer suits Hong Kong.

This article appeared in the Hong Kong Economic Journal on Feb. 23

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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