Pressure builds on finance chief for cash handout in budget

February 20, 2020 17:14
Hong Kong's Financial Secretary Paul Chan is facing growing calls for cash handouts to citizens reeling from an economic downturn caused by the coronavirus outbreak and the 2019 social unrest. Photo: HKEJ

As Financial Secretary Paul Chan Mo-po prepares to present the budget for the 2020-21 financial year next Wednesday, he is under immense pressure from all sides to offer cash-handouts to the public.

In the past, political parties which called for the government to hand out cash were mostly those relying heavily on grass-roots citizens and low-income groups to win votes in elections, whereas political groups representing the business sector such as the Liberal Party and the Business and Professionals Alliance for Hong Kong (BPAHK) usually shunned the idea.

However, things are totally different today as the double whammy of coronavirus and social unrest triggered by the government's 2019 extradition bill fiasco has taken a huge toll on the economy and affected people’s livelihoods.

Now, parties from across the political spectrum are unanimously calling on the financial chief to tap into the government’s huge fiscal reserves and offer eligible permanent Hong Kong residents a one-off cash handout of HK$10,000 in the upcoming annual budget proposals.

Among those who favor cash-handouts are not only large parties like the Democratic Alliance for the Betterment and Progress of Hong Kong and the Democratic Party, but also some pro-establishment lawmakers representing the functional constituencies.

Jeffrey Lam Kin-fung, a BPAHK lawmaker who also sits on the Executive Council, suddenly took a U-turn this week and supported the idea of a cash dole after having constantly opposed such moves in the past.

It is said that Chan didn’t reject outright the idea of giving cash-handouts to the public when he recently met with a number of political parties ito discuss issues related to the upcoming budget.

Now, there is also talk that even if the government eventually succumbs to pressure and agrees to hand out cash to all eligible citizens, it is quite unlikely that the amount of money given out would match the expectations of the political parties which are now pushing for the initiative.

The financial secretary made a projection last month that the budget deficit for the current financial year ending March wouldn’t exceed 3 percent of the city’s GDP.

According to a government figure who is familiar with fiscal and financial affairs, having a budget deficit within 3 percent of GDP is a benchmark that is widely adopted by quite a lot of financially sound countries around the world.

The line is drawn at 3 percent because once a government’s budget deficit crosses that line, there will be the risk of ratings downgrades by credit rating agencies.

Taking this factor into account, the government source believes that Chan would only have HK$30- 40 billion at his disposal when it comes to providing cash handouts.

To put that in perspective, given that Hong Kong has some 6.5 million adults, the maximum amount of cash which the government can provide for every eligible citizen would be around HK$6,000 only at the very most, he said.

Nonetheless, another government figure has suggested otherwise, saying the “3 percent” benchmark is only a “cordon” set by the financial sector, but never the golden rule embraced by the Hong Kong government when it comes to formulating its annual budget.

For example, if we look at past records, we can see that back in 2003, when Hong Kong was plagued by the SARS epidemic, the budget deficit stood at 3.2 percent of GDP in that year, and was even larger -- at 4.8 percent -- in the two preceding financial years.

A person in the political circles said the administration risks further -- and more ferocious -- fire from the pan-dems as well as the establishment camp if Chan continues to tighten the purse strings and only offers citizens a few thousand dollars in cash instead of the suggested HK$10,000 per person in the forthcoming budget.

This article appeared in the Hong Kong Economic Journal on Feb 19

Translation by Alan Lee

[Chinese version 中文版]

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Columnist of Hong Kong Economic Journal.