Pity Financial Secretary John Tsang Chun-wah, who must be one of the most “jinxed” financial officials in the world. Since he took over the position in 2007, he has been chalking up a fiscal surplus, even when the economy faced the toughest conditions caused by a global financial meltdown.

Every year, he has made the same embarrassing mistake of under-estimating the surplus, and faced the same thankless task of figuring out how to dispose of the often embarrassingly large sum, only to be blamed by greedy politicians for not giving enough.

This year, his updated forecast for the surplus was HK$63.8 billion, almost seven times the HK$9.1 billion forecast last year. Knowing the government would be awash with funds, Tsang cancelled his usual consultation with political parties on budgetary proposals in an effort to lessen pressure to increase “handouts”. Nevertheless, Tsang still managed to outperform himself in sprinkling his largesse on diverse sections of the community.

To provide relief to sectors affected by last year’s Occupy movement, Tsang waived fees and charges for thousands of travel agents, hotels, guesthouses, restaurants, hawkers and commercial vehicles. He promised generous salaries and profits tax relief and rates waivers, and will pay social security recipients and the needy elderly allowances amounting to two or three times their monthly rates. Support programmes for small and medium sized enterprises were extended or expanded. For the middle class, Tsang offered a substantial increase in the basic and additional child support allowances.

For the business and financial service sectors, he responded to long-standing requests for tax deduction for capital expenditure on the purchase of intellectual property rights, tax exemptions for private equity funds and tax concessions for multinational and mainland enterprises establishing corporate treasury centres here. These overdue concessions were welcomed by the business community.

It should be noted, however, that all the fiscal achievements were accomplished at the time when Hong Kong’s economy was in fact underperforming, growing at only 2.3 per cent last year, relative to the average growth rate of 3.9 per cent in the past decade. Economists estimate that since the second quarter of 2011, domestic consumption demand (driven by mainland tourism) has outpaced external demand as Hong Kong’s main driver of growth. Last year, domestic consumption was buoyed by spending by households and the government, with fixed asset formation shrinking slightly, the result of a downturn in corporate investment. Tsang’s forecast growth rate for 2015 in the range of 1-3 per cent betrays his lack of confidence about the likelihood of robust growth.

This lack of confidence is hardly surprising, given that even a fairly basic research brief prepared by the Legco secretariat shows Hong Kong’s traditional four “pillar” industries - tourism, professional and producer services, financial services, and trading and logistics - to be losing competitiveness or strategic positioning. Tourism has been growing fastest since 2002, but contributes the least to GDP growth and is poised for a slowdown. The trading and logistics sector faces challenges from the mainland as Hong Kong’s traditional intermediary role diminishes. Professional and producer services remain in good shape, while more needs to be done to develop Hong Kong’s debt and foreign exchange markets.

Tsang’s budget speech is marked by the absence of any further reference to the “six new industries” touted by former chief executive Donald Tsang Yam-kuen in 2009, in the wake of the subprime-induced financial crisis. It is as though the government has given up its hitherto patchy efforts to develop new “advantage” industries, and is falling back to supporting traditional bright spots under the rubric of creative industries - fashion and the film industry.

The lack of new ideas apart, the typical self-congratulatory tone of Tsang’s budget speeches, resting on past laurels - Hong Kong’s increasingly wobbly position as the world’s freest economy - is indicative of the government’s complacency and refusal to acknowledge that it has failed dismally to transform Hong Kong into a higher value-added, knowledge-based economy. Heavy reliance on mainland tourism to jump-start growth and create jobs requiring lower skills has created conflict between mainland visitors and local residents, and a political backlash which the government has yet to resolve.

Despite much talk of supporting promising industries, old or new, Hong Kong’s wealth gap and the lack of upward mobility for many school leavers and young graduates will continue to provide ample fuel for unrest.

Tsang tried to strike a more conciliatory note by acknowledging the “spiritual” yearnings of the young. Yet, while he has outperformed his predecessors in enriching the government and defending its savings, few of the young people noted in his speech, or the older ones in the real world, would share his sense of achievement. The government could surely rejoice in its wealth, but the sense of joy arising from wealth for the people - other than handouts - is hardly shared by many in our community.

Source: SCMP