What to do with our windfall

Liang Hongfu

2008-02-27 02:38:58  China Daily      

In Hong Kong tomorrow, all eyes will be on the budget. A record surplus amounting to more than HK$100 billion ($12.8 billion) has raised public expectations of benefits ranging from tax rebates to generous handouts and lavish spending on social programs.

It is a happy problem that every government would love to face once in a while. In the past several months, many business organizations, civic leaders and ordinary citizens have publicly expressed their views on how best to use the windfall surplus.

Notwithstanding the looming specter of a global economic slowdown this year, public opinion seems to be overwhelmingly in favor of spending a fair chunk of the money now rather than saving for rainy days. Considering the media reports over the past few weeks, most Hong Kong people apparently believe that their government will be only too happy to comply.

This is indeed a good opportunity for the Hong Kong government to show its confidence in the future of Hong Kong by returning a substantial portion of the surplus to the public. Of course, global economic uncertainties, fuelled by the US credit crisis, depreciating US dollar and escalating oil and other commodity prices, have served to remind us of the need for prudent management of public funds. But there is nothing imprudent about giving money back to the people. In fact, it is very much in keeping with the long-standing economic principle of "small government, big markets".

Some business leaders hold the view that tax concessions in the form of lowering tax rates and/or raising the taxable threshold are an effective and direct way of returning wealth to the people that will also generate economic growth. But we must bear in mind that the rates for both corporate and salary taxes are already low compared with those in other developed economies. Room for further tax cuts is limited.

What is more, a large part of the surplus was generated by the exceptionally active property and stock markets. Therefore, a reduction in the tax rates could further shrink the recurrent portion of the government income from an already narrow tax base.

A one-off tax rebate would be most welcome. But this would only benefit the taxpayers who, at least in Hong Kong, constitute only a minority segment of the total population.

Tax rebates could help stimulate consumer spending. However, it is not clear when or whether the benefits would trickle down to the workers who are not entitled to rebates because their incomes are below the tax threshold.

To bring relief to those who are most in need, the government has been advised to set aside a portion of the windfall surplus for the improvement of a range of social services. An area that has received the most attention has been medical service.

This is not to say that people are generally unhappy with the standard of medical care in Hong Kong. In fact, the Hong Kong government has a distinguished record of providing adequate and affordable medical service to all those who are in need.

To maintain that kind of blanket medical coverage for the entire population is becoming increasingly taxing because of the rapidly aging population. Over the past several years, the government has spent much money and effort in search of a solution. The government's cautious approach to medical reform may seem excessive to some. But with so much at stake, it should take time to consider all the possible consequences of making even the most minute changes to the existing system.

A HK$100 billion windfall is a lot of money by any standard. We are sure that the Hong Kong government will use it wisely and in accordance to the guiding principles of our economy.