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The Hong Kong Government has announced an extension to the allocated activities of the Working Group on Long-Term Fiscal Planning to enable it to make further recommendations, including proposed options for a savings scheme (the "Future Fund") for Hong Kong.
The Working Group, set up in June 2013 to look at the state of Hong Kong's public finances, offered the first comprehensive appraisal of their fiscal sustainability since 1997-98 in its initial report issued in March 2014. It cast fiscal policy in a broader, long-term framework, and addressed such matters as how to balance spending and revenues, preserve low tax rates, and reinforce the importance of maintaining a prudent fiscal balance.
In that context, one of its predictions was that Hong Kong could have a fiscal deficit by 2029-30, even if services for education, social welfare (including pensions), and health services were to be maintained at existing levels, or earlier than that if services were to be enhanced.
Among its policy recommendations, the Working Group recommended the setting up of the Future Fund, so that the Government could start saving for the future. Other recommendations included that the Government should look to contain expenditure growth, and preserve, stabilize, and broaden the tax base.
The objective of the Fund would be to set aside a portion of the fiscal reserves and annual surplus, and invest it, so that the savings can be released after a designated period to help relieve the pressure on future generations.
In particular, looking at the stabilization and savings funds established by other countries, such as Australia, the Working Group pointed out that funds should be locked up until after an agreed period, or until the savings have accrued beyond an agreed level. These savings could be used, if absolutely needed, if the territory incurs successive budget deficits.
In recommending that the Government should start to save for the future, the Working Group also considered the special case of the existing HKD220bn (USD28.4bn) Land Fund, which does not have particular expenditure attached to it, and which the Government presently looks on as part of its reserves, or as a stand-by facility. It suggested that the Land Fund, and its investment returns, could be utilized as the starting point for the Future Fund in 2014-15. One-third of future budget surpluses could be added to the fund for "at least the next ten years," it said. On this basis, its total balance in 2023-24 would then be about HKD510bn, or 14.7 percent of gross domestic product.
The Working Group will reconvene this month and seek to report to the Financial Secretary towards the end of 2014. A government spokesman said: "We are grateful to the non-official members for their kind agreement to continue serving on the Working Group. We will continue to count on their professional support."
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