the launch of 10 livelihood measures at a cost of 10 billion yuan
Executive Council member and former HKMA President Ren Zhigang pointed out that Hong Kong’s fiscal position is affordable, but reminded not to let the government’s recurrent expenditure grow too fast and rely too much on non-recurring income.
A budget with an expanding economic deficit is necessary
Ren Zhigang pointed out that social violence in Hong Kong in the past few months has obviously had a serious impact on Hong Kong’s economy. He hopes that this phenomenon is only short-term, but it seems that social emotions need time to calm down, so the negative impact on the economy may continue for some time.
Ren Zhigang analyzed that at the micro level, the government needs to take appropriate measures at the macroeconomic level in addition to measures to support enterprises, protect employment and benefit the people’s livelihood. In terms of finance, it is necessary to maintain monetary stability and a sound financial system structure. However, due to the linked exchange rate policy, there is very limited space for adjusting the monetary environment.
He said that current macroeconomic policies should focus more on fiscal measures, and the overall goal should be to adopt an expansionary fiscal stance to stimulate the economy. For a long time in the past, the government’s fiscal stance has repeatedly caused large economic surpluses, which has a drag on the economy. For example, in the 10 years from 2008/09 to 2018/19, fiscal surpluses averaged 3% of GDP.
In his view, under the current circumstances, it is necessary to make a deficit budget that has an expansion effect on the economy. An internationally recognized level of prudential budget deficit is about 2% to 3% of GDP. Based on the current Hong Kong GDP of about HK $ 300 billion, a deficit budget of HK $ 60 billion to 90 billion can be prudently made.
Remind not to let recurrent spending grow too fast
Ren Zhigang said that, relatively speaking, although the chances of a deficit in the 2019/20 financial year are quite high, the Chief Executive announced the 10 measures to benefit the people’s livelihood the day before. It is expected to use HK $ 10 billion, which should still be affordable by Hong Kong’s financial situation.
He finally reminded not to allow the government’s recurrent expenditure to grow too fast in order to prevent deficits in the current account and excessive reliance on non-recurring income, such as land sales, to meet recurrent expenditures and cause structural problems in public finances.