|I described the 2001/02 Budget as 'an honest account'
of the economy and of the government's financial position
at the time it was delivered. This budget, the last of
six packaged by Donald Tsang, included almost everything
I had pushed for, although there was more 'stocktaking'
of his fiscal management policies than any new taxation
Over the past few years, being able to illicit a response
from the Financial Secretary in the Budget has stood
me in good stead. Before the release of the 2000/01
Budget, I predicted a substantial deficit of no less
than HK$10 billion. The final count showed a deficit
of HK$11.4 billion. At that time, I strongly urged the
government to look out for a possible structural operating
deficit. This was confirmed by the Financial Secretary,
who stated in his medium-term forecast that under the
general revenue account, the government will continue
to show an operating deficit until 2004/05.
In my 2001 Budget response, I also pushed for the need
to assist small- and medium-sized enterprises (SMEs)
to enter the China market following China's accession
to the WTO. In 1999, I spoke about the necessity of
using the accrual basis of accounting to provide the
government with a better tool for financial management.
In the same year, I also suggested that the government
consider listing the MTRC and other government-owned
enterprises. Since making my recommendations, the Financial
Secretary has positively responded to all of these proposals.
With regard to this year's Budget, my response will
focus on the government's huge fiscal reserves, a subject
I raised in 1998, following the Handover, and to which
the government partially responded in 1999. In my official
Budget response for 2001, I also feel it is important
to comment on the government's budgetary predictions,
as well as discussing the need for greater transparency
in regard to the government's revenue projections.
Commenting on these aspects will I believe, help the
public to understand better the predicaments often experienced
by the government when calculating the yearly budget.
The Budget comprises an operating statement (which
is for the government's general reserve account) and
a capital financing statement (the government's funds).
In regard to these two accounts, the government already
separates (albeit awkwardly) its recurrent income and
expenditure from the much less stable capital side of
its income and expenditure.
However, the results of this separation are incomprehensible
to the majority of the general public and are only useful
if a clearer accounting policy is promulgated and widely
In reality, the main culprits of the government's unstable
budgeting exercise are Hong Kong land sales, investment
income and the government's sporadic share listings,
eg the MTRC. These three sources of income fell by about
HK$27 billion last year, which accounts for nearly 10
per cent of the government's total revenue. But, despite
this drop in revenue, most people frequently overlook
the wide fluctuations in the government's capital expenditure
which is normally billions below budget each year (I
call these elements the ¡¥uncontrollable capital income
As a result, I urge the government to consider clearer
accounting methods akin to those used by public-utility
companies and franchise businesses, which clearly separate
the more stable recurrent income and expenditure from
the more unpredictable capital side. Additionally, I
suggest the government use part of its reserves, ie
the Land Funds, accumulated before the Handover, to
stablise the capital account.
The objective of these suggestions is to help distinguish
clearly Hong Kong's structural operating deficits from
its uncontrollable non-recurrent capital income and
expenditure. Any sudden windfall gains or losses from
the non-recurrent budgetary side can be ironed out by
directly transferring in and out of the stabilisation
or equalisation fund.
Technically speaking, this would not violate art 107
of the Basic Law, and was the government's original
intention for the Land Fund before the Handover - to
support the HKSAR's major infrastructural investment
projects, eg the railways and Disney World.
Since the recent build-up of Hong Kong's huge fiscal
reserves and the acquisition of the Hong Kong share
portfolio, investment income has begun to play a significant
role in the Budget. Nonetheless, the general public
seems to understand little of this, despite my persistent
efforts in LegCo to try and get the government to reveal
In the 2001/02 Budget, the government estimated a figure
of HK$35 billion for investment income (last year, the
budgeted figure was HK$31 billion, but the actual return
was only HK$22 billion). This amounts to an approximately
8 per cent return on the HK$400 billion-strong fiscal
With this in mind, I think the public has a right to
know the assumptions made by the Hong Kong Monetary
Authority in arriving at this investment income figure
and the actual rate of return used. This is especially
true in light of the rapidly falling global stock markets
and the worldwide trend for downward interest rates.
Although disclosing this information will not help to
balance the budget, it will at least give the public
fair warning of what is coming and help to avoid the
wild speculation often associated in trying to predict
the government's budgets.