Jun 29, 2002

BUDGET RESULTS ILLUSTRATE NEED FOR SPENDING RESTRAINT

Chamber Chief Economist, Ian K Perkin, comments on Hong Kong SAR Government’s financial results for the opening two months of the fiscal year.

The SAR Government’s financial results for the first two months of the 2002-03 fiscal year illustrate the urgent need for continued Budget spending restraint in the face of a still uncertain economic outlook and a lacklustre revenue performance.

Figures issued today revealed a Budget deficit of $14.62 billion in the April-May, the opening months of the 2002-03 financial year. That’s the worst beginning to the fiscal year since 1999-2000, when the economy was in the early stages of recovery from the impact of the East Asian financial crisis of 1997-98.

The $14.62 billion deficit for the two months compares with $17.92 billion in opening two months of 1999-2000, $7.07 billion in the same two months of fiscal 2000-01, and $13.14 billion in the opening two months of last year (2001-02).

Although the worst of those years, 1999-2000, did eventually produce a modest full year surplus ($9.94 billion), that was in a climate in the which the economy was recovering, not the uncertainties that are still apparent today, both globally and locally.

Both the 2000-01 and 2001-02 fiscal years eventually produced deficits ($7.81 billion and a massive $63.32 billion respectively), as did the 1997-98 year ($23.27 billion).

The Government is right to point out, as it did in today’s media statement, that “a deficit in the initial months of a financial year was not unusual as many major types of revenue including taxes were mostly received towards the end of a financial year.”

However, a year in which only a modest economic recovery is forecast, cannot be expected to produce the revenues the Government needs to fund present spending.

Significantly, revenue in the opening two months of the current fiscal year was down 3.2 per cent to $23.43 billion, while expenditure increased 1.9 per cent to $38.05 billion.

Given current economic conditions, the need for spending restraint is clear, even with the Government prepared for a $45.2 billion deficit in the full 2002-03 year.

For further information, contact: Ian K Perkin, Chief Economist, 2823-1242