Ordinary Gweilo

It’s hardly unknown for a government to have a giveaway budget just before an election.  Yesterday there were all sorts of tax cuts and rebates, and later this month we have the election for the Chief Executive.

Except that we already know who will win the election, and this "bonanza" ought to be the cause of some embarrassment to the government. 

After all, it was only a few months ago that they were saying that we had a big problem with the budget deficit and needed a Goods & Services Tax (GST) to sort things out.  At that time they were predicting that this year’s budget surplus would be only HK$5.5bn, and that in years when the economy was weaker there would be a deficit.

Yet here we are with a HK$55bn surplus, and forecasts that this will continue for the next few years. 

The government will give most people back 50% of the salaries tax they have just paid, and there are also some fairly modest reductions in the rates of salaries tax that will mainly benefit the "middle classes".  Those on the very highest incomes will benefit the least, because the "standard rate" of 16% remains unchanged.

If the latest forecasts are correct, we can surely expect further cuts in salaries tax, and I do hope this is the last we hear about GST.

Jake van der Kamp has more facts and figures (subscription required)

Huge surplus shows reality overtaxes financial secretary’s ability

"Given
the fact that government revenue and expenditure total about $520
billion a year, involving more than 200 revenue items and a large
number of expenditure items … it is understandable that some
variances between the estimates and the actual figures will occur as a
result of different factors."
Henry Tang Ying-yen, Budget speech

Some
variances? So that’s what he calls it when he starts the year by
forecasting a fiscal surplus of HK$5.5 billion and ends it with HK$55
billion. This isn’t variance from a budget. This is a financial
secretary out of touch with his budget.

He
is not the only one. Five years ago a committee of bureaucrats
concluded that "even when the economy returns to `normal’ growth, the
budget deficits will remain and indeed worsen". In that spirit of
getting it wrong, the chart shows you what Henry forecast for fiscal
balance in his first budget three years ago, what he actually got and
what he forecasts now. You may say, of course, that the reason these
earlier forecasts were far too pessimistic was that no one could have
known how strongly the economy would grow.

I am not so sure.
Anyone who really wants to know how this economy rebounds and what this
can do to our fiscal position has plenty of past instances for
reference. What is required is faith that Hong Kong can still do it.
The knowledge that it always has done it is readily available. The
faith, need I say, is sometimes lacking.

[..]

OK, time
to get to the point of all this. It is that the budget has spun out of
Henry’s control, that he is running much greater surpluses than he ever
expected to run, than we need to run or than are good for Hong Kong’s
economy.

All that he can think of to remedy this, however, is a
series of one-off expenditures and rebates when what he really needs is
a sweeping rethink of revenue measures, as in cutting them, not adding
to them.

Isn’t it ludicrous that only a few months ago he was still talking about imposing a goods and services tax on us?