Colossal relief scheme sparks fiscal concerns
Top News | 9 Apr 2020
Avery Chen
The unprecedented HK$290 billion allotted by the government in a three-phase relief measure - accounting for 10 percent of gross domestic product - will come from fiscal reserves.
The whole package will widen the government's budget deficit to HK$276.6 billion from HK$139.1 billion for the fiscal year 2020-21, which is "causing concerns," said Chief Executive Carrie Lam Cheng Yuet-ngor.
As a result, Hong Kong's fiscal reserves will shrink to around HK$800 billion to HK$900 billion - equivalent to 14 to 15 months of public expenditure - from over HK$1.1 trillion.
The revenue generated from land sales and tax have been affected by worse-than-expected economic contraction, said Financial Secretary Paul Chan Mo-po, who emphasized that public finances remained strong.
Lam announced the latest relief measures worth HK$137.5 billion yesterday, following a HK$30 billion injection into the Anti-Epidemic Fund and a HK$120 billion giveaway budget in February. She said the government will be able to make the money back in the future given its solid foundation.
Chan said the scale of fiscal stimulus in terms of GDP proportion is similar to that of advanced economies such as Singapore, indicating that governments recognize they must respond assertively to avoid the downward spiral of economies and a massive wave of unemployment. Singapore also released three virus relief packages in two months, bringing its total spending to near S$60 billion (HK$326.07 billion), or 12 percent of GDP.
Lam said the pandemic has inflicted a near-catastrophic impact on the local economy, causing the government to draw upon its accumulated fiscal reserves to help people and companies.
However, Chan warned that if the government issues bonds while it still maintains ample fiscal reserves, people may question its relaxed fiscal discipline.
Hong Kong's official foreign currency reserve assets amounted to US$437.5 billion (HK$3.41 trillion) at the end of March, falling US$8.2 billion month-on-month.
Economist Andy Kwan Cheuk-chiu, director of ACE Centre for Business and Economic Research, said the government "has no choice."
He added: "This stimulus package has to be done. We need to support the economy, otherwise, it will collapse."
But he said the government maybe cannot use large-scale stimulus packages in the next few times or it will risk depleting the fiscal reserves, hurting Hong Kong's Linked Exchange Rate System or the currency peg to the US dollar.
Wilson Cheng, co-chairmen of ACCA Hong Kong Tax Sub-Committee, said the plan may mean additional measures to raise revenue are not required in the short term.
"What I believe they are now planning is to make sure the economy does not go into a long-term recession," he said.
"When the economy bounces back, they can get tax revenues back and we assume [there will be a] very positive financial surplus."
avery.chen@singtaonewscorp.com
