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INSIDE LEGCO
September 2003 Issue

Eliminate the Deficit
and Revive the Economy
Efforts to revive the economy must not come at the expense of reducing the budget
deficit, writes the Chamber's Legco Rep, The Hon JAMES TIEN
Last month, Hong Kong's economy started to show signs of recovery. We are
now, hopefully, on the long road to full recovery, but to arrive at our destination, the
government will need to provide further initiatives to boost the weak economy, while at
the same time work on eliminating Hong Kong's budget deficit.
The Central Government has been providing strong support with construction
of the Hong Kong/Zhuhai/Macau Bridge, the Closer Economic Partnership Arrangement and the
"Free Travellers Scheme" for Mainland residents all being given the stamp of
approval. These measures, complemented by Hong Kong's existing advantages, will make it
easier for the economy to get back on track.
However, shortly after the new Financial Secretary, Henry Tang, was
appointed, some people suggested that the government abandon its focus of reaching fiscal
equilibrium by 2006-07, set by the then Financial Secretary, Anthony Leung, and instead
concentrate on revitalising the local economy. I have reservations about this suggestion.
No one opposes the importance of boosting the economy, but does this need
to be at the expense of abandoning our goal of eliminating the budget deficit? Can they
not be inter-related in some way?
The gloomy economy has been contributing to the government's deficit in
recent years -- this year's deficit is even estimated to exceed HK$80 billion. If it does
not stick to its goal of reducing the deficit, our HK$300 billion fiscal reserves, facing
a deficit of nearly HK100 billion every year, might be used up in three years, which would
lead foreign investors to lose confidence in the HK-US dollar peg, and adversely affect
financial stability and eventually the entire economy.
Deficit
hits the economy
I believe that the government should stick to its plan to ax the deficit,
not just because of the points mentioned above, but also because efforts to do so will
also stimulate the economy. For example, the government would be able to save HK$10
billion every year if it reduced the number of civil servants by 10 percent. The money
that it would save could then be used to initiate additional resources to revive the
economy.
Without a clearly defined goal to eliminate the deficit, government will
probably get further into the red and postpone plans to trim public expenditure. As a
result, the same old problems of staff redundancy, and unnecessary expenses will continue
to waste more public money. Taxpayers, especially businesses, will need to continue
shouldering this huge burden.
Given the gloomy economy, efforts to eliminate the deficit by trying to
generate more income would probably fail. But ample room exists for cutting costs, among
which are staff-related expenses, which account for almost 70 percent of government's
recurrent expenditure.
Reduce
headcount and allowances
The government finalised a "0-3-3" pay cut deal with civil
service unions to cut civil servants' salaries by 6 percent over three years. Many people
have expressed disappointment with the arrangement, yet it is seemingly impossible to
terminate the agreement.
However, salaries aside, the government should find other ways to trim its
expenditure, including reducing its headcount and staff allowances. The government will be
able to save HK$7 billion a year once the full 6 percent pay cut has been implemented, but
it also pays out HK$6 billion annually in staff allowances. Even top executives in Hong
Kong can't get some of the perks offered to civil servants. These antiquated allowances --
including financial assistance for civil servants at directorate rank to pay for
air-conditioning and to send their kids to study overseas -- were originally provided for
expatriate officials as incentives to work here in the then British colony. Despite this,
they are still available for civil servants and the number of civil servants claiming
these allowances continues to soar. The government must carefully study how it can phase
out these perks as soon as possible.
The government has twice tried to reduce its headcount through the
Voluntary Retirement Scheme, but has failed to meet targets. As such, it must now lay off
surplus staff to reach its goal. Furthermore, it aims to reduce its headcount by 10
percent by 2006. One problem I see with this plan, however, is that without an interim
target, some departments won't cut staff until the deadline is upon them. This will stop
the government from reducing its expenditure before then. As such, I think departments
should work out a timetable to dismiss 2 to 3 percent of their staff each year, and
include all ranks, including those at the directorate grade, to avoid dismissing only
low-paid staff.
The government seems to flinch at the mention of the pay cut issue, but I
hope it will doggedly combat the budget deficit, and at the same time reallocate more
resources to help the economy get back on a sound footing.
If you have any comments or proposals on my views, please send them to
me directly at, Legislative Council Building, 8 Jackson Road, Central, Hong Kong.
Or email me at tpc@jamestien.com. Tel. 2500 1013,
Fax 2368 5292. |
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