Hong Kong 2013-14 Budget Insights

Calls for a better estimate or stabilization of revenue yields

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The below table illustrates the discrepancies between the original estimated budget position and the actual financial outcome for the relevant years since 2008-09, the highlighted years of assessment covering all the fiscal years during which Tsang has been the Financial Secretary.

(in HK$ billion)   Actual consolidated surplus  Original estimated consolidated deficit1 Difference 
Year of assessment
2012-13  64.92 (3.4) +68.3
2011-12  73.7 (8.5) +82.2
2010-11  75.1 (25.2) +100.3
2009-10  25.9 (39.9) +65.8
2008-09  1.5 (7.5) +9.0

Source: Budgets 2008-09 to 2013-14

The original estimates were of such variance from the actual results to cause in aggregate an underestimate of the actual financial result over the last 5 years by more than HK$325 billion.

While the discrepancies have swelled the fiscal reserves of Hong Kong, they also appear to have prevented Tsang from committing Hong Kong to longer fiscal measures e.g., reducing tax rates as a means of stimulating investment or increasing recurrent public expenditure.

Instead, faced with this embarrassment of riches, Tsang has persistently distributed these “windfall” surpluses in the form of one-off measures such as bonus welfare payments, rates waivers, tax rebates and electricity subsidies, this approach being adopted once again in the 2013-14 budget. These one-off measures have now become expected and recurrent and together with the cash handout of HK$6,000 for each Hong Kong resident adult in 2011, will cost the government a total of over HK$200 billion during Tsang’s term of office as Financial Secretary up to and including the fiscal year ending 31 March 2013.

However, many commentators consider that the spending in the last 5 years of more than HK$200 billion on these one-off measures or “sweeteners” and the cash handout, has not alleviated the perceived deep-rooted problems facing Hong Kong: growing poverty, a widening wealth gap and the absence of adequate social security benefits for the aged and the needy. These commentators believe such problems can only be effectively resolved through government enhanced and targeted long-term policy measures implemented as part of recurrent public expenditure programs funded by recurrent revenue.

Indeed, considering that Hong Kong’s inability to accurately predict its revenue yields has restricted its recurrent public expenditure programs, there have been growing calls for a better estimate or stabilization of the revenue yields. Tsang however has sought to explain his erroneous predictions noting that the revenues from land sales and stamp duties on property and share transactions were by their nature susceptible to wild fluctuations depending on local and global economic conditions that were difficult to predict at the time the original budget estimates were made. In particular, he cited that the higher government revenues from land sales and stamp duties for 2012-13 were attributable in no small part to the quantitative easing measures adopted by various countries that he could not possibly foresee.

That said, ideas as to how a better estimate or stabilization of the revenue yields might be achieved were offered to Tsang during the budget consultation process. These include taking an average of the fluctuating revenues from land sales and stamp duties, say over the past 10 years, as actually representing the current year revenue yields from these two items for budgeting purposes, and introducing a general goods and services tax as a stable and reliable revenue source.

It is to be hoped that the proposed working group mentioned above would give these suggestions due consideration.

1 Original estimate was provided around one month before the commencement of the fiscal year concerned.
2 Actual consolidated surplus for 2012-13 will only be available sometime after 31 March 2013. This figure is the revised estimated consolidated surplus provided on 27 February 2013 by the Financial Secretary in his 2013-14 budget.