HK budget aims to create more jobs

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By Hong Liang (China Daily)
Updated: 2009-03-03 07:49

In Hong Kong, few government announcements are taken as seriously as the annual budget speech of the Financial Secretary. It is an occasion when the government reaffirms its credibility by offering an unadulterated account of the state of the Hong Kong economy and setting the direction of economic policy for the next fiscal year.

In his second budget speech as Financial Secretary, John Tsang Chun-wah did exactly that. Branded as dull and uninspiring by spendthrifts and special interest groups, Mr Tsang's budget has apparently tried to set the least disruptive course for Hong Kong to sail through the stormy waters whipped up by the credit crisis that is dragging the world into a deep recession in 2009.

In keeping with the fundamental economic philosophy of Hong Kong, Mr Tsang has resisted growing pressure from politicians and social activists to follow the examples of some much larger economies that have introduced grand economic stimulus programs. Instead, his budget merely set aside HK$301.6 billion to be spent mainly on job creation.

As Mr Tsang said: "In a financial crisis, a secure job is like an anchor that provides stability to a ship in rough seas."

He did not provide further details, but in post-budget interviews, he suggested that the government's focus was on preserving and creating low- to mid-level jobs for the benefit of the larger proportion of the workforce. Of course, people in the higher-income bracket, notably those in the financial sector such as investment bankers and fund managers, can be counted on to take care of themselves even if they happen to lose their jobs.

The proposed handouts in the budget are limited to an extension of waivers on some government charges and a modest tax rebate, which pales in comparison to the "give away" tax concessions of the previous fiscal year. But it must be understood that in Hong Kong's low tax regime, tax cuts usually have limited effect on consumer spending.

The government has forecast a budget deficit for the year ending March 31, 2009, which, though lower than earlier estimates, cuts a stark contrast to the large surplus of fiscal 2008. Against a gloomy economic outlook, the government has warned of a budget shortfall in each of the next five fiscal years.

To be sure, the government has the option to issue bonds or borrow from banks to finance specific projects that can generate income. But it will have to dip into fiscal reserves to make up for the projected shortfalls in recurrent expenditure. For that reason, the scope and scale of the handouts it can afford are extremely limited.

What should have generated some excitement, or, at least stirred debate, was Mr Tsang's suggestion that the government would become more directly involved in "facilitating" the recovery of the financial sector and the continuous growth of the tourism industry. But Hong Kong business people are always wary of any form of direct government involvement in business.

That's probably why Mr Tsang had included the word "facilitating" in his talks.

In Hong Kong's free-market environment, all the banks and other financial institutions are privately owned. Banking ordinance is largely designed to protect the interests of depositors rather than to empower the government to boss over banks.

What the government has proposed is to begin issuing bonds on a regular basis to lay the foundation of a long-term capital market that remains underdeveloped largely because of a lack of a credible yield benchmark, which can only be established in a highly liquid and active market in gilt-edged treasury debt instruments.

Details of the plan have yet to be ironed out. But this is already seen as a positive step in strengthening Hong Kong's position as an international financial center servicing the capital needs of corporations in the region, particularly those on the mainland.

E-mail: jamesleung@chinadaily.com.cn