Lesson from Greece
Updated: 2015-07-27 07:43
By Hong Liang(HK Edition)
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In his Sunday blog, Financial Secretary John Tsang Chun-wah wrote that Greece's financial meltdown should serve as a stark reminder of the importance of budgetary discipline.
Indeed, the unfolding Greek tragedy is a lesson that should be taken to heart by overly ambitious government officials as well as social activists with an insatiable appetite for direct government subsidies and handouts.
To be sure, the range of social services provided by the government, other than healthcare, has always been seen to be less than generous when measured against the standards of many other developed economies. But this shortcoming has only become an issue in recent years because of the widening wealth gap, which has fuelled public discontent.
This has prompted more and more populist politicians and economists to call on the government to provide greater housing and social security benefits not only to the poor but also to middle-class families that are seen to have been squeezed by escalating property prices and stagnant wages. In response, the government has embarked on a housing program of an unprecedented scale to increase supply in the coming years.
Based on the recommendations of the high-powered Commission on Poverty, chaired by Chief Secretary for Administration Carrie Lam Cheng Yuet-ngor, the government is committed to introducing a slew of new social subsidies for those who need them most.
But there are limits to what the government can do. For instance, a government-directed redistribution of wealth is never an option in this free-market economy.
Those limits are imposed not by ignorance or ineffectiveness, but rather by a rigorous regime of self-discipline that is enshrined in the Basic Law, which rules out, among other things, deficit budgeting. That means that a Greek-style debt financing that eventually brought down that country's economy will not happen in Hong Kong.
The Hong Kong government is expected by its people to produce a balanced budget every fiscal year in keeping with the dictum of keeping wealth in the hands of the people. But balanced budgeting has remained an illusive goal in this external-oriented open economy that makes it hard for financial officials to predict revenue.
Traditionally, financial planners in Hong Kong choose to err on the side of caution, resulting in year after year of embarrassingly large surpluses.
In delivering this year's budget, Tsang took what was widely seen as a politically inaccurate move of budgeting for a surplus. He apparently took the Greek lesson to heart.
Although it goes against the grain of Hong Kong's economic philosophy, budgeting for a surplus is actually a wise move in light of the uncertainties arising from impending interest-rate hikes in the US, the problems with the euro and the sputtering recovery of the economies of the European Union and Japan. What's more, the slowdown in the Chinese mainland economy, or the "new normal", is presenting unpredictable challenges for Hong Kong.
Tsang may seem overly cautious in his management of Hong Kong's finance. But he's right this time.
Contact the writer at [email protected]
(HK Edition 07/27/2015 page8)