Historic high deficit looms

Top News | Sophie Hui 17 Feb 2020

Financial Secretary Paul Chan Mo-po warns that budget deficit for the coming financial year could reach a historic high.

Writing on his blog, Chan said the government is spending an increasing amount on recurrent expenses in the past 10 years on top of the short-term relief measures.

The total expenditure has grown from HK$234.8 billion in the 2009-2010 fiscal year to HK$530 billion in 2018-2019.

Chan said the worsening economy will also reduce tax and land sales income.

He expects the deficit to "last for a period of time" due to the complex and volatile external economic environment and the impact of the Wuhan coronavirus to the mainland's economy.

The virus has also affected various sectors in Hong Kong, which has yet to shrug off the months-long social unrest.

"The epidemic has quite a substantial impact to Hong Kong's economy and it could be worse than the hit it took during the 2003 SARS outbreak," Chan said.

"Industries affected will not only be limited to retail, catering and those related to tourism. This 'tsunami hit' could make the unemployment rate worsen quickly."

He said the four rounds of relief measures launched in the second half last year, the HK$10 billion in relief measures announced by Chief Executive Carrie Lam Cheng Yuet-ngor last month and the HK$25 billion fund to tackle the virus are counter-cyclical relief measures.

Chan added the government increased its expenditure as it needs to catch up on service delivery, including enhancing services such as social welfare, or to invest more in different sectors of society.

He said since the handover, the average annual growth of government expenditure has always been higher than the annual growth of income.

The total government expenditure grew 174 percent from the 1997-98 fiscal year to 2018-2019, but the total revenue only grew 113 percent.

Recurrent expenditure has risen 32 percent from HK$305.1 billion in 2014-2015 to HK$403 billion in 2018-2019, while spending on social welfare and health has increased significantly.

However, Chan said the current fiscal reserves still allow the government to launch the counter-cyclical measures in order to maintain employment and support the economy.

He said in the future, the government will have to pay more attention to financial sustainability and not to spend beyond its means.

Chan will deliver the budget on February 26.

On Friday, the government announced a HK$25 billion package of subsidies to help businesses and ordinary folk tackle the virus-related difficulties.

Some 200,000 low-income families will benefit from a one-off grant of HK$5,000 per household, while student subsidies will go up from HK$2,500 to HK$3,500.

The fund will also support industries and their workers that have been affected by the virus.

Travel agencies will get one-off allowances of up to HK$80,000.

Large restaurants can get up to HK$200,000, while smaller restaurants can claim up to HK$80,000.

Retailers can get a one-off subsidy of up to HK$80,000, while hawkers can get HK$5,000.

Property management firms will also be offered a subsidy of HK$26,000 to have buildings cleaned and the extra payment to regular cleaners and security staff.

sophie.hui@singtaonewscorp.com

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