'Sweeteners' or a secure future?
The 2013-14 Budget announced on Feb 27 has, as expected, drawn much criticism and negative comment. The complaints mainly revolve around a lack of measures to help the poor or inadequate "sweeteners" to whet people's appetite. But, if we take the total amount into account - HK$33 billion - to be forked out for the underprivileged as well as the middle class, it's equal to roughly half the surplus recorded for the last fiscal year. If we also consider the government's spending in various forms of start-up funds for various purposes, the government is actually increasing total spending. Yet, the general public is not happy. If such handouts are offered in Western countries, the financial secretary would be hailed a hero. Something is amiss with our budget system.
During the colonial days, the budget speech hardly attracted any attention. One major reason was that Hong Kong was not rich enough at the time to spark any public interest. Government fee or tax hikes were the order of the day - long queues would turn up at Transport Department offices for renewal of vehicle licenses before the increases set in. There have been no such scenes for quite a long time.
Nowadays, people do not worry about increases in fees or taxes, but are instead more concerned about how much "relief" they would get. In the 1990s, rapid economic on the mainland provided plenty of opportunities for Hong Kong as a whole. The city's economy was booming as the government accumulated huge reserves. Once the reserves are revealed, people would begin to show enormous interest in the budget. This is no surprise. The estimated HK$700 billion in reserves have become a major attraction, with different groups offering divergent views on how the reserves are to be used.
From a conservative point of view, the current financial arrangements are apt. Heavy stress is put on financial discipline, meaning spending should not exceed regular income. However, some structural issues exist in the preparation of the budget, rendering the current system under attack.
The fundamental issue is the nature of the income. The government draws the bulk of its revenues from land sales, salaries and profit tax, stamp duties and investment returns. But, these revenues are subject to fluctuations in a macro-economic environment. The economic outlook for the European Union, the United States and Japan is not rosy this year. Although the mainland's economy is growing at a vast pace, there are still a lot of uncertainties for Hong Kong. There's a chance we will slip into recession. Amid such a scenario, it's prudent for the government to spend less and save up for the rainy days.
The worst may yet to come. It may be recalled that during the global financial tsunami, Hong Kong still recorded a surplus, hence many people will think that the government is over cautious and over conservative in forecasting the economic outlook, leading to restrained spending or relief aid for the people. This is the root of the problem.
To remedy the situation, there have been calls to change the procedures by which the budget is prepared although it is normally planned along set rules and mechanisms. Any changes to the existing paradigm will lead to potential changes in the current tax system and this poses a threat to established interests. This is not an easy task to accomplish. From past experience, the government had tried to introduce new measures in the current tax system but in vain. When there's no urgency to alter the current system, complaints about insufficient "sweeteners" will continue in the years to come.
The author is dean of School of Business, Hang Seng Management College.
