March 11th, 2008:

Markus Shaw – Updated on Mar 11, 2008 – SCMP

Financial Secretary John Tsang Chun-wah’s budget speech gives yet another insight into the mind of the administration and allows us to reflect on some interesting anomalies. Mr Tsang is at pains to stress fiscal discipline and the control of recurrent expenditure, especially in the context of the social welfare costs of an ageing population. He reiterates the administration’s commitment to non-interventionist small government. These objectives would be laudable were they not so inconsistently applied.

The anomalies are most starkly exposed when contrasting the administration’s miserliness in its support for the elderly, and the environment, with its sheer profligacy in infrastructure projects. On the one side we have agonised penny-counting, careful economic analysis and philosophical reflections on the perils of the welfare state; on the other, we have enormous sums poured into infrastructure projects with little or no cost-benefit analysis.

Expenditure on infrastructure, Mr Tsang said, “is the lowest in recent years”. The main reason is that “there are not enough major projects ready for implementation”. But this will increase in the years ahead and “will help create more job opportunities”.

Later in the speech, Mr Tsang again stressed the role of infrastructure projects in creating 27,000 new construction jobs and stimulating wage increases. Infrastructure projects as job-creation schemes: this is nothing less than “New Deal” welfarism in disguise. Small government it is not. These projects are characterised as capital spending, but nothing in the budget’s medium-term forecast over the next five financial years leads one to conclude that they are anything but recurring. The administration’s Faustian pact with infrastructure is every bit as unsustainable as runaway welfare payments.

No one disputes that a modern city needs infrastructure, but attitudes are changing in the 21st century: no city today needs “bridges to nowhere” (Stonecutters bridge) or “bridges to somewhere but just for cars and trucks, with no rail” (the Hong Kong-Macau-Zhuhai bridge).

The government continues to have a real problem with the environment. It might as well drop any pretence that it considers air pollution a high priority. The budget contains three environmental items: a concessionary duty rate on Euro-V diesel for two years; a first-registration tax concession on Euro-V commercial vehicles; and a 100 per cent profits-tax deduction for capital expenditure on environmentally friendly machinery and equipment in the first year of purchase. That’s it. Any other city of our wealth and sophistication would, by now, be treating our appalling air quality as a real emergency requiring urgent, wide-ranging policy initiatives and major financial commitment. Not so our government.

Mr Tsang has been praised in these pages for “effectively turning the city into `Hong Kong Inc’, sharing the profits with shareholders”. This is an inappropriate analogy; the government is not a company driven by the profit motive. A better analogy, and one used by many statesmen, is the simple household budget. When the household funds are flush, we don’t necessarily have to return them to the members of the family. Many in the community are saying: “I don’t need an electricity subsidy and rates rebate; please keep the money and do something about our air quality!”

Significant surpluses are forecast for the years leading up to 2013, whereupon our fiscal reserves will have ballooned to HK$723 billion. As a conservationist, I will be very disappointed if the government cannot find from this treasure chest the HK$550 million or so needed to solve our marine conservation crisis once and for all, or if it cannot seed a conservation trust with sufficient funds to provide an endowment for nature and heritage-conservation funding, independent of government control.

Markus Shaw is chairman of WWF Hong Kong