Hong Kong Financial Secretary Paul Chan has announced that Hong Kong’s spending exceeded income by around HK$37.8 billion in 2019-20 – the equivalent of 1.3 per cent of Gross Domestic Product (GDP). It marks the city’s first deficit in 15 years and a new record.
Chan said on Wednesday that government revenue could not keep up with drastic increases in expenditure, as the economy took a beating from the US-China trade war, widespread protests and coronavirus outbreak.
The finance chief also forecasted a deficit for the next five years, with an estimated HK$139.1 billion for 2020-21, equivalent to be around 4.8 per cent of GDP. In 2004, Hong Kong saw a HK$63.3 billion deficit in the wake of SARS and an economic downturn.
Chan said that almost HK$120 billion of his estimate related to the cash handout scheme and other one-off relief measures.
Diminishing fiscal reserves
Hong Kong currently enjoys fiscal reserves of HK$1.1 trillion – equivalent to 22 months of government expenditure from this April.
“If we keep running a fiscal deficit, our reserves will eventually be used up. This is something we do not want to see,” Chan warned, adding that such reserves would have to be drawn upon to provide funding already earmarked for a number of projects, such as the two 10-year Hospital Development Plans, totalling HK$500 billion.
The financial secretary added that recurrent expenditure – such as administrative costs – continued to rise since the city’s transfer of sovereignty in 1997, from HK$150 billion to HK$220 billion in the first decade, to HK$300 billion in the following seven years, and to HK$400 billion after four years. In the current fiscal year alone, recurrent expenditure increased by about HK$40 million.
“Such rapid growth is not sustainable,” he said, adding that new sources of revenue are needed.
Chan, however, concluded his speech at the legislature on an optimistic note, saying that societal conflicts need to be resolved with patience: ” I believe that Hong Kong is still a fertile piece of land. The quality of its crops, however, depends on the seeds we sow and the way we cultivate and irrigate it. I believe that, no matter what our backgrounds, beliefs and aspirations are, we all cherish and love Hong Kong.”