Paul Chan must deliver the fiscal discipline Hong Kong needs

Financial Secretary Paul Chan Mo-po delivered his latest budget on February 25. Over the past decade, under his stewardship, Hong Kong has weathered multiple economic shocks and recently returned to a respectable growth rate of 3.5 per cent. Yet the tasks ahead are formidable: addressing a structural fiscal deficit in the city’s capital account while ensuring sufficient resources for future growth, all against an increasingly volatile and dangerous global backdrop.Article 107 of Hong Kong’s Basic Law requires the government to “follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance”.Chan, however, was not the architect of significant expansions in recurrent public spending. Since the 2010s, successive chief executives have ratcheted up expenditure on services for the elderly as legislators cried out for help for the growing population of seniors. A prominent example is the public transport fare concession scheme for the elderly and other eligible persons, introduced in June 2012. Its cost has surged from an estimated HK$255 million (US$32.5 million) in 2012–13 to around HK$5.5 billion in 2026–27.Fiscal pressures were intensified by the package of initiatives for underprivileged groups announced in January 2020 by then chief executive Carrie Lam Cheng Yuet-ngor. Measures such as more generous old-age allowances and lowering the qualifying age for transport concessions to 60 are estimated to have added at least HK$100 billion annually to public expenditure, increasing the government’s long-term fiscal burden.In Hong Kong, as elsewhere, once “sweeteners” are introduced, they are difficult to take away. Chan has been criticised for not offering more handouts in this year’s budget. Yet, viewed through the lens of Article 107, resisting renewed calls for expanded benefits was the more responsible course.It is also worth noting that the Basic Law does not stipulate that fiscal balance must be achieved solely through operating revenue. Last year, the government recorded a deficit of about HK$100 billion due to a shortfall in revenue. However, when other funding sources are taken into account – including bond issuance, a HK$37 billion accumulated surplus from the Bond Fund and HK$62 billion in clawbacks from six seed capital funds – the consolidated position shows a modest surplus of HK$2.9 billion.04:25Record surplus prompts Hong Kong government to offer tax relief, sweetenersRecord surplus prompts Hong Kong government to offer tax relief, sweeteners