|A Budget tells us of our financial health. Right now,
we are pretty weak. A good Budget also prescribe the bitter
pill of medicine to help restore fitness. In this respect,
our most recent Budget is probably just aspirin coated
in thick sugar.
Despite the dramatic drop in revenue and the fact that
we are still facing probably the worse economic recession
in our living memory, public expenditure continues to
grow with little, if any, corresponding adjustments
in revenue measures. True, those who own or aspire to
own expensive houses, gamble on horse and drive private
cars have been asked to pay a little more for such privileges.
However, for the ordinary man or woman, life on the
street has hardly changed, and those who are fortunate,
they may even get a small laisee in tax rebate and /
or reduction in rates. The bottom line, however, is
4 years of continuous budget deficits adding up to a
total burden of over $70 billion on our taxpayers' purses.
Fortunately, given the size of our huge reserves, we
can no doubt afford this bill. I can also understand
why the Financial Secretary does not want to sound downbeat
in the present difficult situation. However, accountants
would be remiss for not sounding early warning bells
if our usually robust economy does not bounce back as
quickly as the Financial Secretary has rather optimistically
predicted, more drastic measures to reduce expenditure
and to raise revenue may be needed no matter how politically
unpalatable. I hope the Financial Secretary has a contingency
On his fourth budget, the Financial Secretary has mastered
the art of political packaging - the public readily
accepted the really poor financial out-turn as a matter
of course. I am also quite impressed by some of the
good points made and bold steps taken to relieve the
You might remember that I led public opinion last year
in advocating several courses of Government action:
- manage a temporary deficit budget whilst looking
for longer term solutions;
- seriously strive to control public expenditure,
especially the size of civil service and its pay structure;
- review the business plans for public corporations
and Government departments and enhance their value
to the public through public listing of their shares
or privatisation by competitive bidding, and last
but not least,
- deliver on the Financial Secretary's pledge to improve
investment and business environment.
In his recent budget, the Financial Secretary positively
responded to all these calls.
Despite the obvious difficulties in his attempt to
simplify the structure of the Securities Market, the
Financial Secretary seems determined to make this happen,
which is a step in the right direction. Such a move
is in line with the rapid changes in other global financial
markets if Hong Kong is to maintain its competitive
edge as an international financial centre.
In my response to the Policy Address, I suggested that
the people of Hong Kong expect a miracle rabbit to jump
out of the hat to keep their hopes alive (eg the New
Airport, Metroplan and Disneyland). Luckily, the Financial
Secretary pulled out a fury creature in the form of
Mickey Mouse, the Cyberport and a $8.5 billion tax rebate
- all of those are thoughtful nice touches. Such niceties,
however, have also served well in diverting of public
attention from the more fundamental budgetary issues.
During last year's Budget debate, I specifically stated
that although the Government had already provided considerable
tax reliefs in profits tax, the accounting profession
still strongly expected the Government to introduce
further reductions, such as group tax relief or allowing
tax loss to be carried backward to offset against profits
made in the previous two financial years.
Despite less political appeal, I still believe these
and other tax concessions, as recommended by the accountancy
profession, would have been much better than the massive
tax rebate of $8.5 billion which has now handed out
indiscriminately, irrespective of need.
The diversion created by the controversial massive
tax rebate and Mickey Mouse has, at least temporarily,
concealed the following other fundamental budgetary
issues which deserves serious public debate: -
- there is no long-term solution to restoring budgetary
balance. Is a highly uncertain, rapid economic recovery
dependable? If not, what contingency plan do we have?
- the vulnerability of exceeding our narrow tax base
has been exposed time and again in successive economic
recessions. As such, there are extremely limited options
for finding alternative tax source which has a sufficiently
wide bases to provide the needed high yields with
low costs, and at a low tax rates. Is now, while they
can still readily see the issue at hand, not the right
time to explain this reality to the public?
- Are the Government's efforts to enhance productivity,
i.e. to reduce base-line operating expenditure by
a total of 5% in three years vigorous enough? This
is mild compare to the serious cost reduction exercises
by former Financial Secretaries.
- Is it prudent and fair to recognise the $38 billion
income, a large part of which is probably still unrealised,
accruing from the Exchange Fund's investment yields?
This is particularly pertinent when public expenditure
is still accounted for on a cash basis.
I shall follow up these issues with the Administration
and your ideas are welcome as always.
Trying to sum up my views in the limited space available
for this column the day after the Budget has been a
very challenging exercise. I shall of course provide
a fuller account through my own circular in due course.