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Monday, February 22, 2016, 12:14

Give something back to public

By Peter Liang

Peter Liang argues that the government should take advantage of its current budget surplus by providing some relief to the hardworking people of HK

The most popular game in town at this time of the year is to guess what Financial Secretary (FS) John Tsang Chun-wah is going to do with the expected large budgetary surplus for the fiscal year ending March 31, 2016.

As an annual exercise, the four major accounting firms have produced their estimates of this fiscal year’s surplus ranging from HK$72 billion to more than HK$95 billion. The government posted a surplus of HK$63.9 billion in the previous fiscal year.

The last time Hong Kong achieved a budgetary surplus of the size exceeding the accounting firms’ estimate was in fiscal year 2008 when the government reported a surplus of HK$115.6 billion. That was the year when the US credit crisis was beginning to be felt by all the major economies around the world.

Tsang took a bold step at that time to greatly increase government handouts, including a record HK$25,000 tax rebate which mainly benefited the middle class. In retrospect, some economists said that those incentives helped to mitigate the severity of the impact of the global recession on the local economy.

Once again, Hong Kong is facing external challenges that could cripple its economy. Instead of driving economic growth as in the past, exports, consisting mainly of re-exports to and from the mainland, have been falling for many consecutive months. The financial sector, an important pillar of Hong Kong’s service-oriented economy, continues to be troubled by persistently low global interest rates.

What is more, the retail sector, one of the biggest employers in the city, is struggling with dwindling sales caused largely by the fall in tourist arrivals — principally from the mainland. Many economists said they were worried that if an economic recession takes hold, wages will fall and many more people will lose their jobs.

Such pessimism has already been amply reflected in the depreciation of asset prices. The stock market has slipped into the doldrums since the middle of last year. Even the mighty property market is bracing itself for declining sales and falling prices.

Stimulating economic growth with fiscal measures is not part of Hong Kong’s budget tradition. But Tsang might be moved by a large surplus to give out more than last year when people in nearly all social segments benefited.

On the eve of the budget speech, scheduled to be delivered by Tsang at the Legislative Council on Wednesday, Feb 24, public expectations are high.

The bet is on another substantial tax rebate exceeding the HK$20,000 in the previous fiscal year. Compared to other forms of handouts, a tax rebate is a one-off subsidy that will not become a fixed item of recurrent expenditure. The amount of tax rebates can be adjusted, or even eliminated, on an annual basis without triggering too much protest. Most taxpayers consider rebates more as welcome windfalls than a regular bonus.

It is doubtful whether Tsang will propose an increase in direct subsidies to the elderly and less-affluent families as he did in previous budgets. Rather, he is expected to make a one-off injection of a sizable amount of surplus fund into the Mandatory Provident Fund. This is to help cover investment losses sustained by the fund in 2015.

Some other past incentives, such as the waiving of public housing rents for several months, were criticized by economists as redundant subsidies to welfare recipients, including those who are already lucky enough to be living in government-built low-cost apartments. These economists argued that direct subsidies should be limited to the most needy — including many families living below the poverty line.

Obviously, the most cost-effective way of doing that is to “donate” part of the surplus to the government-sponsored Community Chest, which was established to dispense donations from many different sources to selected qualified charitable organizations. This would be another one-off expenditure that would not affect the government’s recurrent account.

Of course, a direct cash handout to everyone would be welcomed by even the most conservative economists who believe that fiscal stimulants are counterproductive. But don’t hold your hopes too high on this one. It is just not going to happen.

A few economists with conservative inclinations have admonished the public for demanding government handouts. They are wrong.

The government has already amassed a large enough reserve fund to cover almost all real and imaginable contingencies. Giving back part of the annual surplus to the public is the right thing to do. After all, it is their money.

The author is a veteran current affairs commentator.

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