Government Report Sounds Alarm Over HK Fiscal Reserves

by Mary Swire, Tax-News.com, Hong Kong

25 February 2002

The Hong Kong Government released an alarming report last week which warned that fiscal reserves in the jurisdiction could run out in seven years, if a solution is not found to declining tax revenues, and burgeoning public sector spending rates.

There is some confusion in the SAR as to the best way to rescue the ailing economy, which has suffered partly as a result of the global economic downturn, but mainly as a result of its reliance on property and land taxes, which have declined considerably of recent times. In January, the IMF suggested the introduction of a broad-based consumption tax, but the Hong Kong authorities are understood to be reluctant to make such a dramatic move in economically uncertain times.

The Government report stated that the jurisdiction's problems are more likely to be structural than cyclical in nature, and also blamed: 'the growth of Government expenditure exceeding that of the economy in nominal terms.

However, critics of the report have dismissed the Government's assertion that by 2008-2009 the fiscal reserve balance of HK$369 billion will be gone, as an exaggeration. The head of the Liberal Party, James Tien, likened it to 'a whole pack of wolves crying', and criticised the SAR authorities for damaging the jurisdiction's international reputation by scaremongering.

Other observers, including Joseph Cheng, Professor of Political Science at the City University of Hong Kong, were less harsh. Professor Cheng told the Financial Times on Friday that he believed that the report was motivated by 'genuine alarm at the expansion of public sector spending,' but added that 'there is also a political element that this report can be used to counter requests (from legislators) to reduce charges and fees and increase spending.'

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