Expenditure-rise controls advised
March 03, 2014
A working group on long-term fiscal planning has recommended the Government control its increasing expenditure in line with the growth in its revenue and the economy to avoid a structural deficit.
Appointed by the Financial Secretary in June, the group has made a fiscal sustainability appraisal on Hong Kong's public finances since 1997-98 and released its report today.
It projects the economy will have a real trend annual growth of 2.8%, or nominal growth of 4.4%, until 2041. Government revenue will grow at 4.5% annually - about 19.8% of GDP in 2041-42.
If education, social welfare and health services remain unchanged, the group projects a 5.3% annual growth in public expenditure, which is higher than the nominal GDP annual growth of 4.4%, and a structural deficit from the year of 2029-30.
If the three services are enhanced at 1%, 2% or 3%, a structural deficit will surface even earlier, between 2021-22 and 2024-25.
Given that government revenue is projected at around 20% of GDP, the group recommends to keep public spending at the same level by prioritising and offsetting in policy areas.
The Government should preserve and broaden the revenue base by stepping up tax enforcement, and reinforcing principles such as cost recovery, user pays and polluter pays.
The group also suggested exploring the feasibility of turning the Land Fund into a ‘Future Fund’ or savings scheme.
Financial Secretary John Tsang said the report presents a clear warning which calls for serious attention. He said he will invite the group to give a more comprehensive analysis and projections on its recommendations for the government and the community to discuss.
Click here for the report.
