A major, bold step towards public finance reforms
Updated: 2014-02-27 07:15
By Raymond So
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Wednesday was again a big annual event for Hong Kong as the financial secretary presented his 2014-15 Budget to the Legislative Council. It's an occasion that affects the lives and financial well-being of our citizens. In the past few years, the financial secretary had handed out annual "rebates" to the community. But, these so-called "sweeteners" have become an expectation and a norm. In recent years, people have the habit of predicting what kinds of "sweeteners" are in store. To a large extent, they merely see the budget speech as a listed company's annual general meeting. The "sweeteners" are actually "dividends" paid by the government to residents, so it's no surprise members of the public are so interested in the budget - it's cash going into their pockets.
The real problem with such payouts, however, is that they cannot represent long-term planning. Some scholars have, for years, voiced concern over the lack of a long-term financial strategy. There have been arguments that if the "sweeteners" had not been offered in the past few years, the money saved could have been well used to build more universities and hospitals. Indeed, they are not wrong. But, looking back, the past few years also saw periods of financial turmoil following the collapse of Lehman Brothers. We were uncertain what the outcome would be. The government was not wrong in handing out "sweeteners" to people to help preserve society's wealth given the situation at that time. However, such a decision has proven too conservative. As a result, we have lost the chance to invest money in more productive areas.
Nevertheless, the economic situation has emerged more stable now. But, we should, at the same time, brace ourselves for more challenges ahead, with one of the major threats being a rapidly aging population. An aging population will result in decreases in income, and society will be less receptive to change, eroding people's capability to cope with future economic shocks.
Given the uncertainties we're facing, the financial secretary is justified in taking a different approach this time round. The amount of "sweeteners" is very much reduced, with warnings the city could find itself in dire straits unless prudent financial measures are taken in the long run. In his budget speech last year, the Financial Secretary said a working group would focus on financial commitments in the coming years and examine the government's financial status. The group is expected to submit its report next week. We don't know what the exact situation is. Nevertheless, John Tsang Chun-wah's message is clear - there's no rosy picture for Hong Kong.
First, Tsang has tried to cool down people's high expectations of the budget. With potential financial uncertainties looming, he needs to cut back on "sweeteners" and the resistance should not be that great.
Second, he has paved the way for reforms in public finance. Since the city's future financial commitments are great and the government will have difficulties in dealing with them, reforms in public finance are inevitable. But, any reform in public finance will not be easy, as it means changes that will surely hurt some existing interests. The government had previously mentioned reforms in public finance, but no positive action has been taken. The underlying reason is that people will object to any change if their interests are harmed. This year's budget has sparked people's anxieties over the future. It should not be difficult for the public to accept public financial reforms and to allow dialogue and discussions to start.
Perhaps, more importantly, the latest budget can lead to the formulation of a proactive strategic approach in tackling future financial commitments. When the community begins to accept public finance reforms, the government can thus adopt a more proactive mentality in the study, and direct financial arrangements for future. Needless to say, the government is facing a lot of challenges at present with various demands coming from various sectors of society. Amid the current political climate, the government simply is in a difficult position to enact any proactive moves. The challenges ahead, indeed, should provide the government the opportunity to take the initiative and be more proactive with these issues. Whether this will last or whether the authorities can succeed in attaining their goals, only time will tell.
Tsang's budget marks a major step towards public finance reforms. Such a move is paramount as the future is full of ups and downs.
The author is dean of the School of Business at Hang Seng Management College.
(HK Edition 02/27/2014 page1)