Hong Kong's Tsang bows and delivers
By Olivia Chung
HONG KONG - The Hong Kong government, notorious for its reluctance to share its
vast accumulated reserves with the public, is struggling to deflect widespread
mockery after a budgetary u-turn by Financial Secretary John Tsang.
Tsang this week said he would hand out cash directly to the public, caving in
to protests over his announcement a week earlier that he would put the cash
into government-approved retirement schemes. Direct handouts, he said in his
budget, would be inflationary.
"The cash handouts amount to about 1% of gross domestic product. Even if just
half of that is spent, it will still push up
inflation," Bank of East Asia economist Tang Sai-on said after the u-turn.
Tsang on Wednesday said he will now give HK$6,000 (US$770) to about 6 million
permanent residents aged 18 or above, abandoning his original budget plan to
inject the same amount into their pension fund accounts. That's on top of a tax
rebate of 75% capped at HK$6,000. Non-residents and those not covered could get
help through a special fund, the details of which have yet to be worked out.
In his original budget, presented on February 23, Tsang said he would recommend
no direct cash or tax rebates for fear of stimulating inflation, despite the
government sitting on surpluses of over HK$70 billion, making its fiscal
reserves almost HK$600 billion.
He said the injection of the cash into pension funds, obligatory for all
workers, would encourage people to save money.
In a phone-in radio program one day after the budget, Tsang stood his ground
against direct handouts, saying "We have gone through comprehensive
deliberation before coming up with this budget ... therefore I can see no room
for changes."
On Wednesday, however, Tsang told a press conference "Inflation is a problem
for which we should be on alert ... Any similar measures will affect inflation.
But all of us have heard clearly the strong demands from society. That's why I
made this decision after striking a balance."
Tsang said he believed the revised measures would benefit most citizens,
covering civil servants, housewives and retired people. Incentives would be
given for people to save rather than spend the cash.
The handouts, in an economy where annual retail spending comes to HK$1
trillion, may add only about one fifth of one percent to inflation forecast
this year to hit 4.5%, analysts said.
Inflation last year was 2.4%.
The about-face will cost the government HK$41 billion, with HK$37 billion for
cash handouts and HK$4 billion for the tax rebate. The previous proposal to put
money into pension funds was slated to cost HK$24 billion. The government is
working out when and how to distribute the cash, spokesman Patrick Wong said on
Wednesday.
It will be the first time in Hong Kong's fiscal policy history that direct cash
handouts have been given, though similar practices have been adopted in other
places, including nearby but smaller Macau, where revenues have benefited from
the huge growth in the casino industry, now the world's largest.
The Macau government this year is paying a "wealth-share" cash handout of 4,000
patacas (US$500) to permanent residents and 2,400 patacas to non-permanent
residents, a third of last year's handout to 6,000 patacas. Macau started
giving direct cash handouts in 2009 when it paid out 5,000 patacas to
residents.
Bank of East Asia economist Tang Sai-on estimated the handouts would lift
inflation by 0.2 percentage points to 4.7% this year. At the same time, the
handouts will boost the economy by 1%, even if only half the new cash is spent,
with HK$18 billion added to GDP estimated at HK$1.74 trillion, the South China
Morning Post reported, citing Hang Seng Bank economist Irina Fan Yuen-see.
Raymond So Wai-man, dean of Hang Seng Management College's school of business,
said the government now was like a company with shareholders, and bound to
distribute dividend when it makes profits, totally in violation of its
rationality for managing public finance.
"It has now become a company and when the company makes a profit, it has to
distribute a dividend ... issuing cash handouts would create a public
expectation in future," he said.
So said the government's move will also send a wrong message to the public that
there will be direct distribution of money every year.
Political observers said the revised handout plans will have a greater negative
impact on the governance than the economy.
Tsang's integrity is now bankrupt and the government is a real lame duck, said
Ivan Choi, a lecturer at government and politics department of the Chinese
University of Hong Kong.
"The fact that half a year of hard work preparing the budget can be thrown
away, showing populism and not rationality dictates the policy-making process
... The government will pay for the damage done to its integrity," Choi said.
"Now the public knows the government will meet their demands if they can
mobilize enough pressure," he said.
Political parties hostile to the government still oppose the revised budget,
citing its failure to address social and economic issues such as property
prices and the pension fund. They say they will still hold scheduled protest
against the budget on Sunday.
Supporters of Hong Kong's thousands of domestic helpers from the Philippines,
Indonesia and elsewhere, often paid less than the minimum wage, objected that
they would not benefit from the handouts.
Unionist Lee Cheuk-yan said: "After you swallow this sweet, can you get a flat?
Or solve the widening wealth gap or education? No!"
A immediate survey conducted by the Hong Kong Institute of Asia-Pacific Studies
showed 41.3% of respondents were dissatisfied with the budget. Tsang's approval
rating reached a record low of 47.2 points.
One way or another, it was a bad week for the Tsangs who run Hong Kong. Chief
Executive Donald Tsang Yam Kuen (no relation to the financial secretary) was
slightly injured in the chest on Tuesday after being pushed by a street
protester objecting to the budget. The chief executive was discharged from
hospital after a check-up showed that he suffered no serious injury.
Olivia Chung is a senior Asia Times Online reporter.
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