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Our Government was quite rattled by bad news of our public finances last month. Shortly after the downgrade of its future rating by the influential international credit agency Standard and Poor's, the Government released its own interim financial results that showed a record high budget deficit of over HK$70 billion. Expert analysis indicates that the problem is clearly structural rather than cyclical. The skeptical public remains absolutely unconvinced that the financial secretary has a foolproof and workable plan to tackle this widening budget deficit. The politicians, economists and government critics may have many varied solutions to offer. But most of them will only skim the surface of the problem. At least for the time being, the community is in need of some clear direction out of this unhappy state of affairs.

I believe that it is time for the Government to respond swiftly to tackle this community-wide concern. The serious deficit is a gaping wound to our financial stability that needs immediate redress. There is no room for inaction or blind fatalism by just wishing the problem will go away when the economy recovers. We need a Government that will clearly and honestly recognize the source of the problem. A team of ministers who are determined to steadfastly reset Government priorities to focus on core values and services. A financial secretary who is able to identify the necessary resources to carry out its master plan and the unwavering political will to put those plans into action. Then last but certainly not least, an Executive Council headed by the Chief Executive that possesses the political acumen to lead the community to reach a social contract that maintains the delicate balance of our numerous sectoral interests.

To my mind, there is no doubt that the root cause of the structural deficit is in the over spending of the Government. The telltale signs are clear. In response to the rapidly rising public expectations in the last decade, our Government has also expanded hurriedly in terms of head counts, administrative functions and in the variety of public services delivered. The growth was so significant that even at the peak of our economic boom years during the late 90s, the recurrent income of the Budget was still barely sufficient to cover its recurrent expenditure. As we all know that the economy will rise and will fall in cycles, it should be no surprise to anyone that the government's income will also follow broadly cyclical movements. The Government must never rely on short-term windfall gains from land sales and speculative stock and share values again to finance public services and to make project commitments with long-term recurrent expenditure implications.

The newly commissioned Ministerial System needs to win quick and sure approval from the community. However, it is probably finding it easier said than done without the much desired additional financial resources to hand. In the midst of a deep recession and low morale, the private and business sectors are not exactly ready to leap in response to ministerial calls from expensive reform. Most of us are probably happy just to be left alone for a while to lick our wounds and recover. It is hardly the time to push too many ambitious reforms all at once no matter how worthy they may seems in principle.

I believe that the first and the greatest accountability that this Government must collectively face is to show us how to run a tight ship and to remain financially afloat. The success story of Hong Kong is not built on a populist Government that might risks leaving Hong Kong in financial shambles later. Our Ministers must exercise self-restraint and to learn when to put personal ambitions on hold.

As a whole, the Government should resolve to tackle this mini-budgetary crisis. The scare resources must be first put to areas in which the free markets of the private sector cannot readily provide for. Otherwise, steps should be taken to outsource the services or to privatise services so as to minimise unwarranted Government subsidies. The Ministers should also question themselves whether or not any new reforms that require substantial financial resources are 'urgent and essential' rather than just simply desirable. A responsible Government must not be afraid to say no when making difficult choices in the light of the present financial hardship. On the other hand, a Government only eager to please and ponder indecisively would not inspire confidence in leading us out of this maze.

Whilst the Government is full of plans but lacks the immediate financial resources because of budgetary constraints, the private sector is in an entirely different situation. The community is actually flushed with idle funds in the form of some HK$4,000 billion in bank deposits or equivalents that are low yield. This is surely a clear sign of shortage of investment opportunities in the private sector. I suggest the Government make a determined attempt to harness and provide proper incentives for the private sector to participate in public sector investments such as our road and transportation systems, education and medical services etc. Hong Kong has a very successful track record of partnership with the private sector in power generation and port facilities in the past. But when the going has been good in more recent times, it has begun to take almost everything upon itself, sometimes even in competition with the private sector.

All the private sector requires to participate is a sense of fair play by our Government and an investment environment with a reasonable degree of certainty and stability. The Government has a particularly crucial role to play here in the increasingly politicised environment where politicians are hungry to score short-term political gains.

The community would no doubt desire that our Government to invest in the future. They would also need to be convinced that private sector participation is better than Government lending and raising taxes such as the Sales Tax. But it should be apparent now that taking further borrowings to finance a continuous spending spree by the Government is perhaps not a solution but merely procrastination in dealing with the root problem. It is not the right time to introduce major regressive taxes like the sales tax. If the Government is keep too busy combating a host of interest groups on a wide battlefront over just a few minor tax increases that will only raise nominal revenues, it might miss spending time to unlock the fully loaded bank vault that is waiting to be tapped.

It is the Government's job to lead and persuade the community with the immense political means at its command. Politics should be deployed as a tool of the Government rather than being used as an excuse for self-limitation and inaction. What the community desire is a fair deal where everyone plays a contributory part. There is no reason for the Government to ponder further if it is committed to taking on its fair share of the work.


Dr Eric Li is the LegCo Accountancy Functional Constituency Representative. For more information, refer to his website at http://www.ericli.org 

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