Staying the course or shaking all over?
Author: Mrs. Regina Ip (Member of Legislative Council, Chairperson of Savantas Policy Institute)
Every year, in the run-up to presenting the budget, the Financial Secretary is faced with the recurrent dilemma of staying the course or shaking the system all over. Mind you, in the case of Hong Kong’s annual budget bargain ritual, staying the course doesn’t mean observing tough fiscal discipline, but repeating one-off handouts to please the crowds.
If the crowds are happy, is there a case for shaking the system? The answer is a resounding yes, if for no other reason than that the handouts only manage to please the crowds briefly. And they make the public hungrier for ever more generous fiscal concessions, in a society already short of resources for long-term economic diversification because of the narrow tax base. For example, the government is so short of recurrent resources for upgrading education that it is trying to “commercialize” the provision of education services so that the government could get off the hook - an abdication of responsibility unheard of in other developed economies. Shouldn’t the Financial Secretary work harder to re-engineer the system?
At the risk of sounding naive, the answers to the Financial Secretary’s fiscal quandaries may not be as hard as it seems. Irrespective of whether or not Mr. John Tsang, the Financial Secretary, is a devout Catholic like his boss, the Chief Executive, ample lessons may be found in bible teachings. Can’t public finance be managed in as simple a manner as Joseph advised the Pharaoh after interpreting his dreams of the seven fat and lean cows and seven full and thin ears? As history has proved that good years of plenty are bound to be followed by bad years of scarcity, the holder of the pubic purse is well advised to save for rainy days, so that he would have the resources to do “counter-cyclical” spending when the economy nosedives into a recession. This is precisely what British economist John Maynard Keynes advocated in the light of the mismanagement of the Great Depression of the 1930s, and what policy makers of the developed world are practicing after the financial crisis of 2008. Our government has meted out quite a heavy dose of Keynsian tonic, in the shape of financial stimulus amounting to over $80 billions in two years and financial guarantees for small and medium enterprises of up to $100 billion.
A more challenging task than counter-cyclical spending to shore up the economy is maximizing the returns from the savings in the government’s coffers. Our government is in the enviable position of presiding over two formidable surpluses: our fiscal reserves of over $400 billions and our foreign exchange reserve of over $2 trillion. There is no good reason why our government needs to hoard more than required under rules for prudent financial management set by the International Monetary Fund. As for concerns about possible attacks on our currency, the need for stashing hard currencies has been much reduced by the phenomenal amount of liquidity sloshing in the Asian financial systems, and the upward pressure on the Hong Kong dollar.
Again the bible offers sound advice on financial management. Just as the master in one of Jesus’s parables has admonished his “wicked and slothful servant” who hid his talents in the earth, the unprofitable servant who did not put money to good use should be cast into darkness, gnashing his teeth.
As he chief custodian of public funds, there is no reason why the Financial Secretary should not admonish the Hong Kong Monetary Authority, being the chief manager of the Exchange Fund, to do better than delivering a 6.1% average annual return from 1994 to 2008, when the sovereign wealth funds of Singapore and the sizable endowment funds of several Ivy League universities had been delivering double-digit growth in the comparable period.
It is in fact puzzling why Hong Kong has been so tardy in setting up its own sovereign wealth fund to maximize returns, grow the middle class, support strategic industries and groom national champions as Singapore and other cash-rich countries, including China, had done. Central bankers receiving world-record salaries should be tasked to perform above the current modestly set benchmark. There is no reason why the Financial Secretary should balk at this task. It is about time the master stands up to his servants, and not be cowed by their outsize salaries and seemingly superior financial expertise and prowess.
Post on 2010-02-23 South China Morning Post
