Between a rock and a hard place

Crunch time has come early for Financial Secretary Paul Chan Mo-po.

Although his budget showtime is still two months away, Chan has already come under pressure to cough up enough money needed to set in motion a large number of expensive items the chief executive has committed to in the policy address.

The answer to that is to either increase the revenue or lower the expenditure to free up resources from some less urgent areas.

However, the sad truth is that it is often easier said than done.

Chan has been trying to overcome the shortfalls by borrowing. In addition to the HK$46.6 billion raised by issuing green bonds, he is also reported to be planning to borrow a further HK$65 billion via bonds over the next five years.

This means Hong Kong will be saddled with a big debt of more than HK$100 billion that will have to be repaid. The borrowings may narrow the cash gap temporarily, but they would be imprudent for a small and open economy such as Hong Kong.

Excluding the bridging loans from green bonds, the SAR's fiscal deficit actually exceeded HK$222 billion for the first six months of the current fiscal year rather than the HK$177.7 billion that has been polished up to make the public feel better.

Nonetheless, I sympathize with Chan's difficult situation.

At such a crunch time, it would be tempting to generate incomes by increasing existing taxes or creating new ones. But this would be poisonous.

I hope that when the Legislative Council passed a non-binding member's motion two weeks ago - to demand a public finance review amid calls from some lawmakers to include goods and services tax - that it was not a trial balloon to test the water on one hand and manage public expectation on the other.

Yesterday, also in Legco, Chan showed no sign of scaling back in spending support for policy address projects though he admitted the need to steady the body on fiscal prudence.

It was also no less curious to hear Executive Council convener Regina Ip Lau Suk-yee fire a warning shot against repeating an act by ex-chief executive Tung Chee-hwa to sell government properties to fill a widened fiscal gap.

Selling government malls and car parks to the LINK, alongside selling public housing to sitting tenants and quarters to civil servants failed to solve the financial crisis at the time. It was the so-called individual travel scheme allowing mainlanders to go shopping in Hong Kong in large numbers that rescued the SAR from its crisis.

The scheme's effect has diminished over time. These days, more Hongkongers go shopping in Shenzhen than the other way around.

It may be too soon to call what is before everyone an economic crisis. But the subject is bound to heat up as Chan works hard to put together what could be the most difficult budget ever undertaken by him.

An accountant by profession, he knows that it is either by increasing the revenue or cutting back on expenditure if fiscal prudence as required by the Basic Law is to be restored.

If prudence is still a concept too difficult to comprehend, let us put it this way: eat within our means.