Blog

Consultation exercise for the Budget

I attended a special meeting of the Finance Committee of the Legislative Council (LegCo) few days ago to brief members on the latest Hong Kong economic situation and seek their views on the upcoming Budget. This is my first formal interaction with the newly inaugurated members at LegCo meetings since the improvement of the electoral system. The rational discussion environment at the meeting was conducive to constructive interaction and comprehensive exchange of views between the executive and legislative branches. During the meeting, members raised a wide range of concerns, covering anti-epidemic efforts, supporting measures, public finance, and the development of industry and the Hong Kong economy.

Let me summarise here a few points elaborated at the meeting. On the economy, benefitted from strong export, the largely controlled local epidemic situation, continuing recovery in domestic demand, a robust growth in private consumption further boosted by the Electronic Consumption Voucher Scheme, as well as the notable growth in private investment, the economic growth of last year is expected to reach 6.4%. This has reversed the recession recorded in the previous two consecutive years. The unemployment rate has also subsided to 4.1% gradually.

In the fiscal front, for the soon ending 2021-22 financial year, the fiscal deficit was originally projected to reach $101.6 billion. If we exclude the issuing of bonds, the bringing back of the Housing Reserve and the Future Fund's investment return, the deficit could even reach the high level of $180 billion. However, given the stable economic recovery, and the rather positive outlook for the property market, our land sale income and the premium paid by developers were much higher than expected. Coupled with the higher income from stamp duty driven by the high transaction volumes in property and stock markets, the fiscal deficit pressure of this financial year has been greatly relieved.

Nonetheless, the uncertainties brought by the fluctuating epidemic situation has caused frustrating pressure on the overall economy, the society and people’s livelihood. Apart from making dedicated effort in the anti-epidemic work, we also have to make good use of the public resources to provide relief and support to citizens and enterprises under the epidemic. At the same time, with the complicated and changing international political and economic landscape, we must be prudent in fiscal management and allocate resources where they are required. In addition, we have to maintain our financial strength to ensure financial stability and prepare for known and unknown situations and needs. As Hong Kong is an open and small economy, we need to keep vigilant on the potential risk and impact brought by the mounting inflationary pressure in external market, including the risk of rate hike, reverse in capital flow and fluctuation in asset prices.

To create a stable environment for development, we have to stabilise our internal situation and take precautionary actions for external challenges to strike a right balance between different fronts. In face of the complicated internal and external environments, it has put many limitations and challenges in front of us in preparing the Budget. Representatives and stakeholders of different sectors have shared with us their observations and suggestions during the consultation meetings held over the last two months. To have such suggestions materialised, policy support and breakthrough in implementation constraints are needed. We have therefore relayed the suggestions gauged to the relevant policy bureaux for review and consideration. When the suggestions are considered feasible in policy perspective, we could then follow up in the financial aspect.

As learned from the experience over the past few years, even given the same problem, different people could have very different ideas on how to solve it, making it quite hard to reach consensus. What we can do is to make better explanation to the public to gain the majority’s support, and at the same time hope for the understanding of those with different views. Once a decision is made, we will do our best to deliver the most favourable outcome in order to earn people’s recognition.

Taking the Electronic Consumption Voucher Scheme proposed in the last Budget as an example. When the Scheme was first announced, there were some concerns and criticisms in the society. However, with the team’s effort, the support of Stored Value Facility (SVF) operators, the concessions offered by merchants, as well as the participation of the public, the Scheme has achieved a good outcome in terms of boosting the economy and promoting the wider use of electronic payment. According to preliminary figures, since the launch of the Scheme, the four SVF operators have seen an increase of around 4.7 million personal accounts and around 96 000 commercial accounts, with a surge in the number of e-payment transactions.

In recent consultation sessions, quite some participants suggested that we should disburse electronic consumption vouchers again in the upcoming Budget. However, some opposed this suggestion as they think the Scheme costs a large amount of expense and public resources should be deployed in a more targeted approach. Furthermore, some were of the view that as people had avoided going out and reduced consumption under the epidemic, that might limit the effect of the consumption vouchers.

Besides, some stakeholders expressed their hope that one-off relief measures. i.e. the so-called “sweeteners” can be carried on in the Budget. Yet some were concerned that measures such as tax and rate rebates could only benefit those with higher income and assets, resulting in another kind of inequality.

On the other hand, if any relief measure strives for precision and focus on certain targeted groups, it could cause backlash as some may regard it as differentiated treatment. On the contrary, if the measure could benefit the mass, it could also be criticised as giving insufficient care to the underprivileged. What we can do is to strive for a better result that is deemed acceptable to most people. We also have to strike a better balance and make better explanation to win people’s understanding.

While the economic outlook this year is on a good tone, the biggest uncertainty and barrier is the development of the pandemic which has been troubling us for two years. We need to work together to fight against the virus, with a view to achieving the goal of dynamic clearing of cases, and create a favorable environment for the resumption of cross-border travel with the Mainland. Only by doing so, we could achieve economic recovery to the largest extent under a safe environment, and protect people’s living and travel from the disturbance brought by the pandemic.

16 January, 2022