Why the govt needs new thinking on the budget

March 01, 2018 09:30
Hong Kong's finance chief Paul Chan should break free from the budget mindset that the government needs to squirrel away huge amounts of reserves for an undefined rainy day, observers say. Photo: HKEJ

Hong Kong is a super-rich city by any standards. It has fiscal reserves of about HK$1 trillion. But even that astronomical amount is not the whole story. The government has squirreled away huge amounts of money in various funds over the years. Add all that to the fiscal reserves and we have almost HK$2 trillion.

This figure doubles to a staggering HK$4 trillion if you also include the vast amount held by the Hong Kong Monetary Authority. Our latest budget surplus is HK$138 billion, far more than Financial Secretary Paul Chan Mo-po had forecast earlier. We are by any measure the envy of governments around the world.

With all that public money, Hong Kong's 7 million-plus population should be living utopian lives, even more blissful than the Scandinavian countries, which have high taxes but the happiest people in the world who enjoy multiple government benefits. The truth, however, is that Hong Kong people are among the unhappiest in the world.

Chan's predecessor, John Tsang Chun-wah, accumulated huge surpluses during his nearly ten years in office. He believed he knew better than the people how best to spend the people’s money. The trouble was he didn’t spend it. He saved it for the proverbial rainy day. He saved and saved until he lost sight of the looming forest for the trees. After ten years of saving, his rainy day has yet to come. What has come instead is the darkness of the forest he lost sight of with his Scrooge mentality.

In super-rich Hong Kong, sick people have to wait ten hours to see a doctor in public hospitals during the flu season. Nurses and doctors are so overworked they can no longer cope. Hospitals are so overcrowded that corridors become makeshift wards. The last time the government decided to build a hospital was in 2004. After nearly 14 years, the Tin Shui Wai Hospital is still not fully functional.

About 1.3 million people live below the official poverty line. A quarter million people live in jail-sized subdivided homes. The wait for public housing is about four years. We have a growing class of so-called N-nothings, people who don’t qualify for subsidized housing or welfare payments because their incomes are slightly above the eligibility level. Having to pay high rents and all other livelihood expenses themselves makes them worse off than people below the poverty line.

Hong Kong has a rapidly aging population but the government’s record in building elderly care homes is shameful. Labor and Welfare Secretary Law Chi-kwong made the excuse that building an elderly care home is an arduous process that takes about ten years. China took just three years to build the Beijing-Shanghai high-speed rail link. Total incompetence is the only way to describe taking ten years to build an elderly care home.

As the mainland proudly showcases to the world its extensive high-speed rail network, Hong Kong’s long-suffering MTR passengers must often wait up to five trains to board a train during rush hour at busy stations. It took the deaths of 19 people in the Tai Po bus crash to expose the ugly underbelly of our bus companies which make good profits but paying drivers paltry wages.

If you didn’t know the government had HK$4 trillion in the bank you would have thought Hong Kong is a poor third-world city with a high poverty rate, shortage of hospitals, families living in squalid subdivided homes, people waiting four years for public housing, and no elderly care homes for the aged.

The fact that we have so much money yet suffer from the same problems third-world countries face means just one thing: our government is incompetent beyond belief even though the pay packages of our bureaucrats are the second highest in the world after Singapore, which has less reserves yet doesn't have the problems that beset us.

Tsang never defined his version of a rainy day during his time as financial secretary but whatever it was, it never arrived because he never spent the billions he saved for it. Yet the truth is ordinary people know it started raining hard in Hong Kong long ago. Tsang never knew because he was totally sheltered from it.

He never had to wait ten hours to see a doctor. Government officials have a fast lane in public hospitals. He lived in the official residence of the financial secretary, not a subdivided flat. He didn’t have to worry about finding a place in an elderly care home. It wasn’t just Tsang. All our policy-makers are shielded from the rain that now pelts ordinary people. If you don’t feel the same pain as the people, how can you make decisions for the people?

Even though Chief Executive Carrie Lam Cheng Yuet-ngor promised a new people-oriented style of government, there can never be a radical philosophical change in thinking between Tsang and his successor Chan. The simple reason is the bureaucratic decision-making process in the government is still stuck in the past.

Just look at the way the budget speech is written. More than 20 years after reunification, the speech style, tone, and format remain unchanged from colonial days. Administrative officers from different bureaus and departments write sections of the speech which are then compiled into a whole. That’s why these speeches are totally devoid of any vision. It’s always the same whether it's read by Donald Tsang Yam-kuen, Henry Tang Ying-yen, John Tsang Chun-wah, or Paul Chan Mo-po.

Chan’s budget yesterday departed somewhat but not radically from Tsang’s many budgets because of the huge public pressure he came under from the public and political parties to spend more of the embarrassingly massive surplus. He handed out generous tax rebates and more generous new and old relief measures for the grassroots and middle class. He spent money to improve medical care and to invest in selected industries, including the IT sector, to make them more competitive.

Chan’s version of saving for a rainy day was to invest in the future by pumping money into strengthening services and industries that will cushion the blow during hard economic times.But that was only one part of his saving for a rainy day. He still stuck to the old-style of saving for a rainy day by stashing money in the bank.

He needs to gather the guts to break Tsang’s past stranglehold on budget thinking that Hong Kong must squirrel away huge amounts of reserves for an undefined rainy day. His willingness to increase government expenditure to beyond the limit of 20 percent of GDP is a good start even though increasing it to about 21 percent is a small step. His decision to spend 40 percent instead of 30 percent of the budget surplus on the people is a departure from the past. But he needs to be bold enough to accept that there is plenty enough money to spend far more to improve people’s lives yet have enough left over for future hard times. It is the people's money, after all.

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A Hong Kong-born American citizen who has worked for many years as a journalist in Hong Kong, the USA and London.