Financial Secretary Paul Chan Mo-po has said that Hong Kong’s constitutional requirement to achieve a fiscal balance should not be a constraint.

Article 107 of the Basic Law stipulates that Hong Kong “shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget… [and] keep the budget commensurate with the growth rate of its gross domestic product.”

Paul Chan Mo-po. Photo: HKFP/Catherine Lai.

“I agree that the implementation of this Article should not be a ‘straitjacket’ which restrains our annual revenue and expenditure,” he said in his first annual budget after his appointment in January. “Instead, there should be a certain degree of flexibility.”

He said that as a small externally-oriented economy, Hong Kong is highly susceptible to the influence of the external environment and cyclical fluctuations: “[S]hort-term fiscal imbalance is probably inevitable.”

“I consider that it is most important to spend only when necessary and to act with prudence and strive for an overall fiscal balance over time.”

Photo: HKFP/Tom Grundy.

Small increase in expenditure

The surplus forecast for the year 2016-17 was HK$92.8 billion – much higher than the HK$11.1 billion estimate made last year by Chan’s predecessor John Tsang. Fiscal reserves were expected to reach $935.7 billion by end of March. Both figures were the highest in 20 years.

But in the latest budget, overall expenditure increased year-on-year by 5.3 per cent to HK$491.4 billion, of which recurrent expenditure will reach HK$371 billion, a 7.4 per cent increase compared to last year.

The total sum of “sweeteners” for the next fiscal year – including one-off relief measures in the form of rebates, extra tax allowance and extra funds for social welfare recipients – is estimated to reach HK$35.1 billion. The sum is lower than the HK$38.8 billion spent last term.

“Together with other spending initiatives in the Budget, they will have a fiscal stimulus effect of boosting GDP for 2017 by 1.1 per cent,” Chan wrote.

Tesla electric vehicle.

Meanwhile, Chan proposed measures to help the tourism sector.

The licence fees for 1,800 travel agents, over 2,000 hotels and guesthouses, restaurants, hawkers, and restricted food permits will be waived for one year. The measures will benefit 27,000 restaurants and operators.

The government will also revise the waiver arrangement for electric cars, which will expire on 31 March this year. The First Registration Tax waiver for electric private cars will be capped at HK$97,500.

First Registration Tax of electric commercial vehicles, motor cycles and motor tricycles will continue to be fully waived from 1 April 2017 to 31 March 2018.

Wu Chi-wai. Photo: HKFP.

Democratic Party lawmaker Wu Chi-wai said there was “nothing special” about the budget, and that it was simply following the old footsteps of former finance chief John Tsang.

He said Chan failed to spend the surplus well to share the fruits of economic development with the public, such as waiving rent for public housing estates.

The DAB party. Photo: HKFP/Catherine Lai.

The pro-business Liberal Party also said the budget was disappointing. Its lawmaker Felix Chung Kwok-pan said it was even more conservative than John Tsang’s.

The pro-Beijing DAB party chairwoman Starry Lee Wai-king said the budget achieved progress with stability, and that it proposed measures to help the grassroots and small enterprises. But she said she was disappointed that it did not help low-income people who were not qualified for any social welfare.

Kris Cheng

Kris Cheng is a Hong Kong journalist with an interest in local politics. His work has been featured in Washington Post, Public Radio International, Hong Kong Economic Times and others. He has a BSSc in Sociology from the Chinese University of Hong Kong. Kris is HKFP's Editorial Director.