The Hong Kong Budget
The Hong Kong government budget for 2010-2011 continues a long history of throwing many small crumbs to the masses but giving most concessions to the better off. It thus yet again makes nonsense of official claims to be trying to do anything about a yawning wealth gap that has even troubled the aspirant chief executive and current convener of the Executive Council, Leung Ching-ying.
The budget, announced Wednesday by Financial Secretary John Tsang, projects an overall deficit of HK$25 billion compared with a surplus of HK$14 billion in the year ending March 2010. However, budget outcomes are almost invariably more favorable to the government than the initially forecast HK$36 billion deficit as revenues from land sales and stamp duties on property and share transactions have boomed thanks to expansionist policies in other countries.
The most striking feature of the new budget, and the main reason for the projected deficit, is a 20 percent jump to HK$65 billion in capital spending. Much of this is to fund massive infrastructure projects some desired by Beijing and all desired by the developer/contractor groups which constitute "business opinion" in Hong Kong but which have doubtful economic returns. They include the controversial high speed rail link to the border, a bridge to Macau and Zhuhai and a highway bypassing the central district of Hong Kong which will speed officials to their office but otherwise contribute to traffic and air pollution.
While the government purports to want to develop high-valued-added service industries, its infrastructure spending is mainly about pouring concrete. Meanwhile little serious money is put to improving the environment to make it more attractive to brain-based industries.
Private sector construction on housing is at very low ebb largely due to restrictive land sales policies aimed to keep prices high for the benefit of the revenue and the big developers who sit only large amounts of developable land. The budget did announce some changes in land sales policy which may increase supply. But the philosophy of maximizing revenues at the expense of quality of living conditions remains firmly in place.
The government even boasts that mortgage payments for a 45 square meter apartment are now "only" 38 percent of median household income. That is high enough already but shows the strain which will arise when interest rates rise from current abnormally low levels. To get to median household income requires two workers per household which leaves no opportunity for such workers to have children as well as buy an apartment. No wonder Hong Kong has almost the world's lowest fertility rate – Macau's is even lower for the same reasons.
On the give-away to the population list were a many minor proposals to appease various sectors from those with disabilities to language training to opera and other arts and some marginal help for children of social security recipients. In money terms they amounted to little but will employ lots of civil servants to implement and provide more seats on "advisory" bodies stuffed with official appointees and the usual collection of yes-men.
The biggest tax giveaway is a one-off waiver of property rates costing $8.6 billion subject to a ceiling of $1,500 a quarter. Public housing tenants will also get a waiver of two months rent costing $1.8 billion. The net impact of these waivers is to benefit the top 50 percent of earners more than the bottom 50 percent. It is further complicated by the fact that ratable values are being increased by an average of only 1 percent overall and for large ones but falling by 1 percent but those for small domestic premises and public housing are rising by 6 percent and 5 percent respectively.
Interestingly, and typically, Tsang never mentioned these increases in his speech. They are buried in the supplementary document – itself rather a slim document compared with the mass of detail on funds, capital allocations etc that was once available in printed form.
The second biggest give-away is one which almost exclusively benefits those earning above median incomes -- HK$4.5 billion which will barely impact anyone earnings less than $150,000. The biggest benefits go to those in the $250,000-300,000 range.
For the needy, the most conspicuous are those which are simply one off hand-outs, particularly for the old and some other welfare recipients. But instead of acknowledging that they deserve them at a time when prices are rising again they are offered as a one-off gifts by a government trying to play Santa Claus with public money.
Much was made of a rise of 4.4 percent in health spending. That is certainly more than an overall 3.3 percent rise in recurrent spending but is dwarfed by a 9 percent rise in "support" to $31 billion (civil servants and their pensions). Indeed it was notable that the financial secretary warned against "welfarism" while as a civil servant turned minister enjoying all the fruits of a very generous health and pension system which the already highly paid and job-secure civil service awards itself.
Even the government's own data provides obvious lies about spending. Budget documents claim, for example, that the increase in recurrent public spending will be 3.8 percent in "real terms" though only 3.3 percent in current dollar terms. Yet at the time it is forecasting increases in the consumer prices and other inflation measures. Thus the "real" increase should be less not more than the current dollar one.
No mention is made in the budget of the reserves of the HKMA which now are close to $500 billion or roughly the same as the fiscal reserves. This is all public money and very little is needed for monetary purposes. Much too has been accumulated as a result of the decline of the Hong Kong dollar against other currencies – reflecting the very same low to negative real interests rates that have impoverished many of even the most thrifty wage earners now in or near retirement. It would be easy to take a big slice of that to create an annuity fund for the elderly until such time (at least three decades) as the Mandatory Provident Fund can provide adequate pensions. But under the Hong Kong system only civil servants have a secure old age.
The budget overall showed that while skilled at doling out sweets the financial secretary was bereft of new ideas, bereft of understanding the social issues increasingly worrying Hong Kong people, and as much as ever defensive of vested bureaucrat interests and the selfish demands of a small group of big businesses. In short Tsang showed himself to be even more of a mouse than his namesake chief executive Donald Tsang and his measures have, if anything, made the income gap even worse.