How can man so often wrong be right choice for CE?

An essential element to a civil society is that policy discussions should be fact- based and well-reasoned.

Franklin Lam

Monday, March 20, 2017

An essential element to a civil society is that policy discussions should be fact- based and well-reasoned.

The election for chief executive provides an excellent opportunity for Hong Kong to move forward towards that end by putting the integrity and competence of candidates through the media X-ray machines.

Over many weeks of media coverage, debates and forums, the public can scrutinize every Lego block that makes up a candidate's manifesto, and then form an overall view as to which contestant's model of Hong Kong is the most credible and desirable.

However, an Advent calendar event or a more civil Hong Kong to look forward to, this election is not - not until the media go over each candidate with equal rigor and fairness, holding each to account for his or her policy claims until all "alternative facts" are wrung out.

As most media fact-checkers are, somehow, omitting John Tsang Chun- wah, one of the three candidates and our financial secretary from 2007-16, as an informed citizen, I feel duty-bound to point out a number of glaring inaccuracies in the campaign so far.

A week ago, in response to criticism that he had been a "miser" in managing the city's finances, he rebutted that "while total government expenditure was only HK$200 billion in 2007 when he first took office as FS, the latest figure has reached almost HK$500bn, registering a nearly 1.5-fold increase over a decade, or a double-digit annual rate of growth over this period."

We would expect the most senior finance person in the land to have a prejudice for details - and getting the decile percentage right is not much to ask for.

Yet, total government expenditure in 2007-08 was, in fact, HK$234.8bn and the draft estimate for 2017-18 is HK$491.4bn, representing an accumulated growth of 109 percent, 40 percentage points short of Tsang's claim of 150 percent! This translates into an annual rate of spending growth rate of 7.7 percent over the period which even the most forgiving maths teacher would not accept as "a double-digit growth." Furthermore, Tsang should not have referred to the period 2007-08 to 2017-18. When he took office in July 2007, the 2007-08 budget was not prepared by him and his first budget was 2008-09. Also, he resigned 21/2 months before the drawing up of the 2017-18 budget.

Therefore, if we focus on Tsang's nine-year tenure as FS, total government expenditure in 2008-09 was HK$315.1bn, whereas the corresponding figure for 2016-17 was HK$466.7bn - this was growth of only 48 percent or an annual growth rate of 5 percent.

Tsang set out in his manifesto the goal to "provide public housing accommodation to 60 percent of our population" (today's number is 45 percent).

Lawmaker Edward Yiu Chung-yim has pointed out that such an objective would take 250 years to accomplish! Having chaired the "Steering Committee on Land Supply" since 2010, coordinating the overall plans for land development, the former FS should be familiar with the processes and the maths involved.

However, when analysts joined in to inquire into the apparent ridicule of the said roadmap, he still insisted this was an "achievable long-term goal."

I have nothing personal against Tsang and wish only to examine the facts and figures surrounding his candidacy. That said, the size of errors made during the campaign has alarmed me: an actual "48 percent" against a claimed "150 percent" gain in spending; "5 percent" against a claimed "double-digit growth" is in the magnitude of multiples, not percentages! This is an error a bank teller would avoid.

Resources given to all implementable policies?

In a debate hosted by a teachers' organization last Sunday, Carrie Lam Cheng Yuet-ngor, another election candidate (the third is Woo Kwok-hing), asked Tsang three specific questions regarding government resources allocated to the education sector. He offered no reply. Tsang must answer these in order to dismiss the label that he is a "miser" and prove he provided resources to all policy initiatives raised by the Education Bureau as he has claimed. However, these facts stack against him:

1. In 2015-16, in a year that was not marred by any significant global or local economic stress, and against the backdrop of 12 consecutive years of fiscal surpluses and record reserves, he initiated the "0-1-1 Envelope Savings Programme", which cuts government recurrent expenditure by 0 percent in 2015-16 and 1 percent in each of the two subsequent years, while allowing civil servants an annual pay rise of 4-5 percent. This has effectively cut real services by some 4 percent each year.

The average Mr Wong in the street has felt the effects of such cuts - queues for public services have lengthened and supposedly, street cleaning has been reduced by two times each day from six times. Despite his claim that education was a top priority, it was not spared the ax and suffered the same cuts.

2. Denying repeated requests by educators, the government has increasingly used time-limited grants instead of committing to an increase in recurrent spending to fund certain new initiatives from the education sector.

3. Although he has claimed kindergarten is the most important rung of education, the annual adjustment for the subsidy to kindergarten education has been based on general inflation, instead of an index that reflects more closely rising staff costs (eg referencing the civil servant pay scale), which frequently outstrip inflation. The call by educators for true costs faced by the schools to be reflected has been repeatedly made.

Facts, economic insight, discipline - found wanting

In fact, the difficulty to grasp what is correct seems to extend from the campaign back to the nine-year tenure of our former FS, with the total underestimation of fiscal surpluses compared with what he had forecast, amounting to an eye-popping HK$900bn, or some 30 percent of total budget over the same period, once we have adjusted for the many one-off "cash handouts", relief and fund transfer measures that have had the effect of lowering the reported surplus.

Clearly, such colossal bounty did not descend on our coffers manna-from- heaven style and it was up to our top financial brain to investigate how, in the long shadow of the global financial crisis, Hong Kong could defy recessive forces to wrong-foot his calculations to the tune of almost 30 percent each year. Such an exercise would readily show the territory has been the prime beneficiary of China's burgeoning middle class, whose demand for services which range from retail to financial and health care - services Hong Kong excels in providing - will keep our economy buoyant, whatever ill winds are blowing around the world.

If Tsang had dug deeper into his numbers instead of reciting his mantras of great uncertainties over the European debt crisis, weak global economy and worries over currencies as reasons for fiscal prudence, he would have noticed that behind the robust rise in profit tax each year stood a hoard of firms wanting to expand, demanding more commercial space and manpower; and the gains in salary tax and employment would generate strong demand for housing, both of which should have urged Tsang to step up efforts in land supply.

Yet, it is well known within the administration that he approved no more than 20 percent of the requests for additional manpower and resources made by bureaus related to land development - the "top policy priority" of the incumbent government. A consequence of this is an acute housing shortage that has triggered eruptions in prices that have required multiple rounds of demand management measures by his departments to contain.

If the clock could be reset to nine years ago and economic and social budgets were set to "feed the growth" of the economy and "improve services to society", more sums would have been invested to enable businesses to expand and generate the employment and profit taxes for future years. Indeed, the total surplus of HK$900bn that Tsang failed to forecast could have supported construction of 900,000 public housing units, enough for allocating three units to every person on the waiting list and eradicating the problem of "sub-divided units"; or a fivefold expansion of the public health-care sector, when a mere 60 percent increase would be sufficient to cater for the SAR's aging needs; or to triple the total area of shopping space, more than satisfying the demand from both the locals and mainland tourists, avoiding the so-called "conflict" between Hong Kong and the mainland altogether!

The alternative to HK$900bn surplus and fiscal anorexia is a far happier Hong Kong, where everyone is well housed, little or no inflation, no queues in hospitals, no issues with tourists and still a lot of surpluses.

Wrong calls

Tsang admitted in a radio show last week that he did not really know China that well. This lack of knowledge on the part of the architect of our economic and fiscal policies goes some way to explain his "surplus/under-investment blunder." The structural growth of the mainland economy has created more and more opportunities for our businesses. Our economy is making more and more money outside of Hong Kong and as we go GNP, the gains amassed will trickle back to the territory and government revenues.

In all, it appears Tsang is clueless when it comes to Hong Kong's fiscal and economic strategies. In light of the huge challenges and opportunities facing our society and economy, we urgently need a knowledgeable and dedicated leader as our next CE and not someone who indulges in oversimplification and blame game.

Franklin Lam Fan-keung is founder of HKGolden50