Hong Kong General Chamber of Commerce Hong Kong General Chamber of Commerce
Click here to login e-Club  Click here to visit our Chinese frontpage

From the Chairman

Inside Legco

From the CEO

Cover Story

Branding --
The Power of Market Identity


If You've Got it, Brand It

Special Features 
Post Impressions

O'Rear's View 
Trade and Unemployment

China Economic Update

Is China Losing Its
Cheap Labour Advantage?


Business
Business Help Wanted!

Ricoh Hong Kong Limited

Chamber Programmes
Working in
the Pearl River Delta


HKGCC Mission to
France, Spain and Portugal


e-Commerce in Real Life Roadshow

Chamber Programmes


HKGCC Member Cocktail

Chamber
Happy Hour


Chamber in Action


ARCHIVES

2010 Issues
2009 Issues
2008 Issues
2007 Issues
2006 Issues
2005 Issues
2004 Issues
2003 Issues
2002 Issues
2001 Issues
2000 Issues
1999 Issues

Search for

 
Advanced Search

SUBSCRIBE TO THE BULLETIN TODAY!

FROM THE CHAIRMAN                                        November 2003 Issue


theBulletin.gif (2057 bytes)


The Return to Fiscal Responsibility

With Hong Kong's economic prospects looking brighter, it is time to return our focus to rebalancing the public accounts, writes ANTHONY NIGHTINGALE

Through submissions, lobbying and comments here and in other media, your Chamber has taken a firm position on the need to rebalance our public accounts. During the SARS crisis, we recognised the need to act quickly to confront an immediate threat to our economy, and advocated measures to address highly unusual circumstances, realising that in the short term this would exacerbate the deficit situation. Now, with the necessary relief measures in place and economic prospects brighter, it is time to return to our top priority: rebalancing our public accounts.

In the next few months, government will again be drafting the budget, and I believe it is time to get serious about bringing our spending in line with our revenues. Over the past decade, our recurrent revenues increased an average of 1.3 percent a year, while spending grew 9 percent per annum. In the first half of this year, the shortfall on the operating account is likely to be nearly as large as that for all of last year, which at more than 5 percent of GDP, over $60 billion, may well affect our international credit rating. At this rate, our fiscal reserves will vanish in 2006.

The anticipated switch to accrual accounting, while long over-due, will make the overall deficit look smaller, but doesn't change the pressing need to get serious about bringing spending into line with income. Many people have suggested the use of government bonds to improve the fiscal position, which may be acceptable for the funding of infrastructure projects, but not to cover the operating deficit.

As with any corporate balance sheet, governments have to consider both spending and revenues. In Hong Kong both columns need major surgery. However, unlike companies that can close down unprofitable operations relatively easily, governments are constrained in their cost-cutting actions. Aside from public expectations that services provided in the past will continue to be available (at little or no cost), civil servants are employed on "permanent and pensionable" terms, and cannot easily be laid off.

Our recurrent revenues have been declining for five straight years, while our spending has increased without pause. In this year's five-year forecast, a 7.7 percent average annual rise in operating revenues from government taxes, fees and other sources is projected, nearly three times as fast as the estimated growth in nominal GDP. This is optimistic.

Our shortfall in revenues is closely tied to economic performance, so it should be no surprise that more than 40 percent of the decline in operating revenues in the 2002-03 fiscal year was due to lower profits taxes. If companies are less profitable, higher tax rates will not solve the problem. And, when companies are struggling to recover, taking a larger share of their earnings in taxes slows job creation. We must find another way. It is the spending side that causes the most concern. After five consecutive deficits we have yet to see a major effort to reduce the cost of government. Operating expenses, which are slated to rise 5.4 percent this year, are already up 20 percent, with no relief in sight. It is time to set lower spending limits, not higher targets.

What can be done? First, we need to trim the size of government through significant head count reduction and far greater use of public-private partnerships. We therefore welcome moves to attract private investors to redevelop the Central Police Station, build an ice-sports centre and town park in Tseung Kwan O and create a leisure and cultural centre in Kwun Tong. More such projects need to be added to the list, and quickly. But there are examples of government entities moving in the opposite direction, for example the Housing Authority is now planning to "in-source" certain maintenance projects previously let to the private sector.

Trimming head count is more difficult, but needs to be done. One area is water and sewage, which have been successfully privatised in other communities. Another is highway maintenance, and a third is care for the elderly. These are services paid for by the government, either directly or through subvention that may well be handled by the private commercial sector. While government would still fund the work, private contractors have been proven time and again to be far more economical service providers.

Take it a step further. The trading funds were set up in 1993 to improve public services by putting functions such as land registration on a more business-like footing. They were a neat step to move toward privatisation without having to face the political problems of selling off state assets prior to 1997. With that concern behind us, we are now free to move toward full privatisation, and in doing so, reduce the cost of government services. This is an important point: the objective need not be full cost recovery, but merely cost reduction.

At the same time, the tax base is much too narrow to support even a reduced spending program. Sixty percent of all salaries taxes received are paid by just 10 percent of taxpayers, and less than one-third of all employed people even pay a salaries tax. We need to broaden the tax base. The quickest way to do this is to reduce personal allowances, which are among the highest in the world. Over the medium term, we also need to ensure that our revenues are more robust in the face of economic uncertainty. When times are tough, profits and incomes fall, and so do revenues. It is therefore time to undertake a serious discussion of the overall tax regime, and to start the process of education and consultation on the nature and level of a broad-based consumption tax.

Without a comprehensive and coherent plan to reduce government spending, the budget will never return to balance. Higher tax rates and new sources of revenues will be required, and Hong Kong will begin to lose some of its competitiveness as the best business city in the Asian half of the world. Clearly, the next budget will need to show steady, year-by-year reductions in recurrent spending, and more reliable revenue sources.

Anthony Nightingale
Chairman
HKGCC


Click here to contact the Editor...
Send Your Feedback


  Joint Business Community Luncheon: 2010-2011 Budget

  EU Trade Policy after the Lisbon Treaty

  Meet the Author Series: "Winning the Talent War-The 8 Essentials"

  HKGCC China Spring Reception

  Women Executives Club Presents: - Sustainable Eating - Let's Eat and Live Smart...

More >>

past events
Chocolate to Melt Your Heart

Ten lucky members had the opportunity on February 11 to make their own... details>>

The Art of Management in China

本會非常榮幸邀請到首位出任國內銀行行長的香港銀行家王浵世先生出席『與作者對談』午餐會,與會員分享他20多年內在國內的豐富工作經驗。 ... details>>

Forum on Methods for Selecting the Chief Executive and the Legislative Council in 2012

The HKSAR Government has published a consultation document on how the ... details>>

China’s Measures to tackle Financial Tsunami : Assessment and Prospects

The global financial crisis caused economies around the world to suffe... details>>

After COP15: What's Next For Business and for Cities?

Simon Reddy, Executive Director of C40 Large Cities Climate Leadership... details>>

more >>

About HKGCC | Member Services | Join Us | Contact Us | Advertising | Jobs
The Chamber's Privacy Policy Statement
Copyright © 1998-2010 The Hong Kong General Chamber of Commerce. All Rights Reserved.