Chief Executive Carrie Lam has been calling for an overhaul of Hong Kong’s long-standing fiscal philosophy, echoing her election campaign rhetoric earlier this year.
The comments imply that she is not too happy with the government’s established conservative approach toward public spending, fueling speculation as to what her new administration might do.
Last week, Lam provided some clues as she publicly endorsed the views of Joseph Yam, a former central bank chief, who called for a fresh and bold fiscal policy stance.
In a blog post, Yam wrote that “miserly” fiscal policy has constrained Kong Kong’s economic growth and that authorities need to step up spending to build a better future for the city.
Yam, who is now a key advisor to Lam, labeled the fiscal policy of the past decade as being “too prudent, not aggressive enough and not keeping up with the times”.
While Hong Kong’s Basic Law stipulates that the government should avoid budget deficits, the guideline shouldn’t be taken too rigidly, especially when public interests are involved, he suggested.
“With Hong Kong experiencing historically slow economic growth rates”, an overly-cautious spending stance “after a decade of fiscal surpluses seems inappropriate, if not irresponsible,” Yam wrote.
Following that article, Lam said in public that she agrees with the view that tight fiscal policy has slowed the city’s economic growth and that the government could be “bolder” in spending.
The comments appear to be setting the stage for a potential shift and some announcements as Lam prepares to deliver her first annual policy address in October.
Lam has denied that she had any hand in Yam’s published article, but observers suspect the piece was aimed at laying the ground for Lam to be a big spender under her new “fiscal philosophy”.
Given the timing of the article, it is quite clear that Lam and her advisory team are preparing for rolling out series of new initiatives that will mark a shift in the government’s fiscal policy.
Lam won praise from the education sector last month when she secured HK$3.5 billion funding for local schools to facilitate extension of contracts with contract teaching staff.
But now the government has come under attack from the opposition camp due to the proposed “co-location arrangement” for the cross-border high-speed rail, a plan that will allow Chinese officials to enforce mainland laws in designated areas of the West Kowloon railway terminus and on trains.
Given the outcry over the special arrangements and joint checkpoints, the Lam administration needs something to divert the public’s attention from the controversial issue.
And what better way to achieve that than by steering the public discourse to increased public spending, dangling potential carrots to ordinary citizens as well as businesses?
Lam understands how to ride on public sentiment and lead the policy debate. Attacking the previous administrations for sitting on huge cash piles and not making meaningful investments is quite a good way to raise the public attention on how taxpayers’ money is spent.
That said, the accusations, considered in large part to be a potshot against former financial secretary John Tsang — who was Lam’s rival in the 2017 chief executive election — are not entirely fair.
During Tsang’s tenure, Hong Kong had committed hundreds of billions of dollars of capital investment, pouring money into several projects including the high-speed rail link between Hong Kong and Guangzhou; construction of the Hong Kong, Zhuhai and Macau bridge; new town development in the northeastern part of the New Territories; and the West Kowloon Cultural Zone.
Including some other projects, the total capital investment would reach more than HK$1 trillion. So, it may not be fair for Yam and Lam to criticize the previous financial chief for keeping the pocket tight and not spending.
The fact is that previous administrations did spend a lot on infrastructure projects, but the objectives were largely political — promoting closer integration of Hong Kong with mainland China.
With Lam now hinting at bolder government spending, we can only hope that money will be used to promote the real needs of Hong Kong people, such as social welfare, education and housing.
Hong Kong people understand that the city’s reserve is the key for support of the Hong Kong dollar.
According to the Hong Kong Monetary Authority, the total foreign currency reserve assets of US$413.3 billion represent over seven times the currency in circulation or about 47 percent of Hong Kong dollar M3.
But what has drawn critics’ attention is a continued rise of the government’s fiscal reserves in the past decade. The fiscal reserves are estimated to hit HK$952 billion by the end of March 2018, up from HK$468.7 billion a decade ago.
Such reserves were accumulated from the surplus from the government operation and mostly from the revenue of land sales. But the government investment projects in the past decade showed that authorities were willing to spend on a bunch of infrastructure projects even though some of them had no significant economic value.
Hongkongers will welcome if the government invests more on initiatives that will enhance the quality of life of local people or improve their livelihoods, rather than just spending money on the so-called white elephant infrastructure projects.
People were dismayed as the government, to give an example, reduced the recurring expenses of the Hospital Authority by HK$250 million a year, even as it continued to pour money into the over-budget express rail link and the cross-border bridge to Zhuhai and Macau.
As Lam promises changes and plans to tap the fiscal reserves, critics are wondering why she is, for instance, not pushing for a universal pension scheme that was suggested by scholar Nelson Chow.
Some observers fear the government reserves may be channeled to China for investment in the Greater Bay Area and other projects.
Well, all this is in the realm of speculation at the moment, and no one knows what Lam will actually do when she and her top aides sink their teeth into the fiscal policy.
Article 107 of the Basic Law says the Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up the budget, and strive to achieve fiscal balance, avoid deficits and keep the budget commensurate with GDP growth.
The clause was aimed at preventing officials from abusing their power and moving the money for unreasonable investments.
Now, as the stage appears set for a shift in the way the government spends public money, it is incumbent upon our lawmakers to keep a close watch on the executive.
What is most important is that the reserves should be put to use to improve the lives of Hong Kong people and promote the city’s long-term development, rather than serving the interests of Beijing.
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