Public finance planning, global cooperation need more focus

March 01, 2019 18:12
Only by maintaining the internationalization of Hong Kong can the Greater Bay Area truly realize its potential, writes Kenneth Leung. Photo: Reuters

I intend to utilize this column in the coming weeks to discuss various topics pertaining to the Hong Kong government’s latest budget, adding my perspective on the key issues related to the city.

For starters, I would like to stay focused on measures relating to public finances planning as well as international economic and trade cooperation.

In his budget speech Wednesday, Financial Secretary Paul Chan Mo-po said the government "will continue to introduce tax measures strategically to enhance our competitiveness and stabilize our revenue.”

Chan announced that from now on, the Tax Policy Unit (TPU), currently under the Financial Services and the Treasury Bureau, will be transferred so as to be directly under the Financial Secretary's Office.

At first glance, the new arrangement might appear to be an example of the government’s stiffened resolve to formulate new tax policies that will work in our economy’s favor.

However, my concern is that the overhaul might just be a move purely intended to redistribute internal resources within the government rather than address real issues.

In the past, the government introduced various tax concessions targeting specific economic activities, only to get a lukewarm response from society, not least because the administration had not carefully and thoroughly assessed the overall economic environment and the actual state of development of the targeted industries before launching the initiatives.

Having said that, after the government has revamped the TPU, it must also formulate a set of solid and measurable benchmarks, such as the employment structure of the related industries, the social mobility, and the overall economic performance of the city.

Moreover, the administration should brief both the public and the related Legislative Council panels on the efficacy of these new tax policy initiatives regularly so as to make sure that these tax concessions can achieve the intended policy goals and cost-effectiveness.

In the face of the long-term economic challenges posed by our aging population and economic slowdown, the previous administration set up the Future Fund in 2016 to secure higher investment returns for the fiscal reserves through placement in longer-term investments.

Following its establishment, the Future Fund is under the same investment management regime as that of the Exchange Fund, and has been subject to the oversight of the Exchange Fund Advisory Committee (EFAC).

The financial chief said in his budget speech that he will invite some leaders from the financial services and business sectors to offer recommendations on the investment strategies and portfolios of the Future Fund.

Yet his suggestion of relying on a few individuals to formulate investment strategies and decisions for the entire Future Fund has led to worries about whether the fund might suffer losses in the absence of a reasonable risk assessment mechanism.

As such, the authorities should further explain to the public the rationale behind the decision.

In other news, the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area was announced last week.

The government is overwhelmingly bullish about the Greater Bay Area project as if it was the only viable way forward for our city, but we must acknowledge an important fact: among all the cities across the Pearl River Delta, Hong Kong has remained the most open one that has fully integrated into the rest of the world over the years.

Under Article 151 of the Basic Law, Hong Kong “may on its own, using the name ‘Hong Kong, China’, maintain and develop relations and conclude and implement agreements with foreign states and regions and relevant international organizations in the appropriate fields, including the economic, trade, financial and monetary, shipping, communications, tourism, cultural and sports fields.”

I am delighted to learn that this year’s budget has devoted substantial pages to discussing the government’s plan to conclude more Free Trade Agreements (FTAs) with other economies. I also welcome the administration’s goal of increasing the total number of FTAs to 50 over the next few years.

As a matter of fact, when it comes to our legal system, freedom of information and free speech, as well as our business operation model, Hong Kong has fully integrated into the international community, a fact widely accepted by places around the globe.

That said, authorities should bear in mind that only by maintaining the internationalization of Hong Kong can the Greater Bay Area truly realize its potential. If Hong Kong's status as an international metropolis comes into question, it will affect the prospects of not only the city, but also the entire Bay Area.

This article appeared in the Hong Kong Economic Journal on Feb 28

Translation by Alan Lee

[Chinese version 中文版]

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Member of Legislative Council (Functional Constituency – Accountancy)