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2008/12/04 Town Hall Forum with Kenneth Chen, Under Secretary for Education |
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TIME TO ADDRESS
GOVERNMENT SPENDING
The findings of
the Government's Task Force on Review of Public Finances, issued today, has confirmed what
most people knew or suspected - the Government has been living
beyond its means and faces a severe structural deficit problem if nothing is done.
According to the Task Force's
report, if the Government's spending and revenue policies continue as they are - even in a notably better economic climate - the
Government's fiscal reserves will be exhausted by fiscal year 2008-09.
Adjust the assumptions under which
the Task Force's report has been drafted (the assumed rate of economic growth, returns on
fiscal reserves, growth in existing revenues, etc.) and it makes little difference to the
final outcome.
What is required to redress the
balance and to get the Budget back on a sound financial footing is a complete change in
Government 's Budget thinking, or as the Task Force puts it, a
change of fiscal "lifestyle", the Hong Kong General Chamber of Commerce said
today.
In the Chamber's view, the first
need is to address the expenditure side of the Budget problem. Government spending has
grown rapidly in nominal (current dollar) terms in recent years and for fiscal year
2001-02 is equal to some 19 per cent of Gross Domestic Product (GDP). Public Spending is
even higher at some 23 per cent of GDP.
The whole issue of Government
spending needs to be addressed beginning now if the expected deficit of some $60 billion
for 2001-02 is to be reduced. Spending restraint also needs to be implemented for the
longer term and all spending kept under continuous review.
On the revenue side of the Budget,
it is clear that the Government's income has been badly affected by two economic slowdowns
in the past five years. This "cyclical" impact will be
reversed as economic growth returns.
But as the Task Force's report also
emphasises, there has been a dramatic structural change on the revenue side of the Budget,
especially as far as property income (land premiums particularly) and investment income on
the fiscal reserves are concerned.
We should not rule out any possible
ways to improve our revenue situation. The time to study what combination to use is now.
However, one of Hong Kong's greatest
attractions for business and individuals alike has been its low, stable and predictable
tax base. This should not be readily abandoned, until the expenditure issue has been
addressed.
As the Task Force itself says:
"The Task Force finds that Hong
Kong is facing an ongoing and persistent fiscal problem. Some of the economic forces
leading to this situation are believed to be structural in nature, although it is
difficult, if not impossible, to discount the effects of all the cyclical factors.
Nevertheless, the model findings show unequivocal signs that even when the economy returns
to "normal" growth, the budget deficits will remain
and indeed worsen. To continue the current fiscal "lifestyle" is therefore not an option.
"The Task Force further
concludes that decisive actions are needed to restore fiscal sustainability, which
underpins the economic prosperity of Hong Kong. It considers that specific expenditure
and/or revenue measures should be implemented over the next few years when the economic
situation permits. It also considers that the longer-term fiscal well being of the HKSAR
should be kept under regular review."
For further information, contact Dr Eden
Woon on 2823-1211
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