SCMP Friday, March 9, 2001

Cautious, balanced but more could have been spent to drive growth


Donald Tsang has offered no surprises in his last offering. He has maintained his style of prudent fiscal management and balanced budgets.
The estimated deficit of $11.4 billion for this year is very close to what he told us two months ago. People should not accuse him of crying wolf this time.
With a forecast budget deficit of only $3 billion for 2001-2002 - basically a balanced one - Mr Tsang could have been more generous in his expenditure to drive economic growth for the benefit of the whole community.
With the opportunities and challenges presented by China's accession to the WTO and globalisation of the world economy, more resources need to be devoted to upgrade our human capital and infrastructure to strengthen our position as a regional hub and the gateway to China.
Even with fiscal reserves in excess of $430 billion in the Government's coffers, Mr Tsang would probably warn us about the threat of structural operating deficits, that is, our recurrent expenditure consistently exceeding our recurrent revenue despite the recovery of the economy.
However, he also admits that it is still too early to say that we have a structural deficit problem - at least, not until a taskforce led by Secretary for Treasury Denise Yu Chung-yee reports its findings later this year.
Unfortunately, members of the public could barely have any input because of the lack of information about the Government's current system of accounting.
In this regard, it is welcome news that the Government is prepared to introduce accrual accounting in preparing its accounts from 2002-2003 onwards, in addition to those prepared under the existing cash-based system, which only records monies actually received or paid during the year.
Under accrual accounting, all assets (including the Government's investments of more than $400 billion in the Housing Authority and public corporations such as the KCRC, MTRC and Airport Authority) and all liabilities (including our financial obligations arising from the civil service pension schemes) will be included in the accounts.
The accrual method will give a fuller picture of the financial position of the Government, in addition to the fiscal reserves as shown under the cash-based scheme.
Hopefully, the new arrangement will greatly increase the transparency of government accounts and ensure that people will have more information at hand on which to judge whether the public finances are being properly managed and our resources properly allocated.
Marcellus Wong is a partner with Arthur Andersen.