Get priorities right in face of fiscal woes

It makes sense to prioritize some capital works and defer others that are less urgent to keep government spending under control amid a prediction by the financial secretary that the SAR will have to struggle with a few more years of fiscal deficits.

After alerting the public to the prospect of another year of massive deficits to the tune of HK$100 billion, Paul Chan Mo-po attempted to ease fears with an updated projection that the amount would be less than HK$100 billion.

Does it make much difference whether the number is going to be HK$100 billion or less?

Whatever the deficit figure he reveals at the end of March, Chan must continue to make serious efforts to keep public spending under tight control in the absence of revenue-generating alternatives.

It is common sense that public finances will start to heal itself the economy improves significantly in general - which would be an ideal situation.

But before an ideal situation becomes possible, serious attempts have to be made to control spending.

As mentioned before, there are merits in the calls to downsize the civil service, whether by head counts or payrolls - either would help the government save many billions of dollars in recurrent expenses in the long term.

Giving planned capital works a new order of priority would also help, allowing the administration to manage the books with increased prudence.

Given that the authorities are under pressure to finance major capital projects such as the Northern Metropolis development and local infrastructure through borrowings in the form of infrastructure bonds, fiscal prudence is needed more than ever.

As he gave the financial budget last February, Chan revealed a government plan to borrow HK$95 billion to HK$135 billion a year for five years to drive the development of the Northern Metropolis and other infrastructure projects.

Nonetheless, the infrastructure bonds were under subscribed in the last exercise.

Before the government are two massive development projects - the Northern Metropolis and Kau Yi Chau Artificial Islands reclamation off east Lantau - planned to generate a colossal amount of land for hundreds of thousands of households in addition to commercial and innovative technology space.

It is conceivable that the reclamation being planned for the surroundings of Kau Yi Chau would be more complicated than the capital works for the Northern Metropolis in New Territories North.

In the face of the fiscal constraints confronting the government, it would make sense to focus on the Northern Metropolis for the time being and return to the Kau Yi Chau reclamation when the government is in a stronger fiscal position to take the reclamation further if the situation then continues to justify the works.

Years of deficits have lowered the government's fiscal reserves to less than HK$600 billion.

Based on past estimates, it would need HK$550 billion to create the artificial islands - and it is more likely than not that the amount would continue to mount in future.

The public would forgive the financial secretary for prioritizing capital works according to their urgency.