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February 27th, 2016:

New HK$43.7bn Kowloon highway project to cost 3.4 times more than expected

The financial budget unveiled on Wednesday revealed that the latest estimates for the new Central Kowloon route highway project stand at HK$43.7 billion. The sum is 3.4 times more than original the amount tabled in 2002.

The infrastructure project is set to commence during the next financial year. According to the Highways Department website, the highway will extend for 4.7km from Yau Ma Tei through to the Kai Tak Development and Kowloon Bay. It is expected to relieve traffic congestion in Central Kowloon and includes a 3.9km long tunnel.

It is predicted that the construction of the highway will take seven years and could be online by 2023.

Proposed Central Kowloon route. Photo: GovHK.

Proposed Central Kowloon route. Photo: GovHK.

The cost of the project was adjusted in 2002, when it was proposed that the highway could carry three lanes instead of two. It was then predicted that the project will cost HK$10 billion. Now, at HK$43.7 billion, each kilometre averages HK$9.2 billion, much higher than the high-speed rail’s average cost at HK$3.2 billion per kilometre, Ming Pao reported.

The Executive Council authorised the project last month, but no price was stated in the gazette, RTHK reported.

Proposed Central Kowloon route. Photo:

Proposed Central Kowloon route. Photo:

The Professional Commons convenor Albert Lai Kwong-tak said that it was unreasonable for the project to have a threefold increase in cost and said the government could be overestimating the cost of the project due to pressure surrounding over expenditure in projects in recent years.

“It’s a self-defence mechanism – better to overestimate than underestimate,” he said.

The Highways Department has yet to respond to media inquiries by RTHK and Ming Pao.

Big business wins again in John Tsang’s budget for Hong Kong

Philip Bowring says the financial secretary has again presented a budget that coddles the rich and powerful while offering mere crumbs to SMEs and disadvantaged groups

Financial Secretary John Tsang Chun-wah may be “distressed and angry” at recent evidence of social conflict, but his highly political budget speech did not suggest an understanding of the “why”.

That surely includes an unrepresentative government comprised of lifetime bureaucrats turned politicians who find it hard to think outside their own little 1970s-designed boxes.

Our fiscal reserves have become a fetish designed to limit spending on social needs

Tsang has been in the job for nine years, but he has yet to make any progress in resolving what the government itself has long admitted is a serious fiscal flaw – the dependence on land price inflation and volatile stamp duty revenue. Broadening the tax base has long been a stated goal. Yet, again, he has made the problem worse by reducing the reach of salaries tax, and by a rates waiver.

Salaries tax now accounts for a pitiful 12 per cent of revenue as the government becomes ever more reliant on less stable sources, including profits tax (28 per cent) – which is now vulnerable to foreign or mainland crackdowns on tax avoidance through transfer pricing. For sure, the cuts are supposed to be temporary, but he will have a hard time reversing the salaries tax concession next year, particularly if the economy continues to face stiff headwinds. As it is, he says the local economy is “laden with risks “ for the coming year.

The claim that his tax concessions will boost the economy by 1 per cent hides the fact that the government has been a contractionary force on the economy for the past year (and beyond) through its accumulation of reserves. If Tsang’s budget forecasts are correct, the government will at best be neutral. He also vastly overstates the impact that a slew of little measures to help tourism, small and medium-sized enterprises, IT and robotics industry development and the like can have in an open economy. Nor should government be involved in promoting events like the Rugby Sevens tournament – which is always sold out anyway! Government exists to facilitate, not subsidise.

The surplus for 2015/16 was actually bigger than it first appears, as Tsang continued the policy of squirrelling away yet more revenue into special, hard-to-reach reserve funds. For the second year running, almost all the income from investment of the reserves has been credited not, as was and should be the case, to operating revenue but transferred to the Housing Reserve.

This kind of manipulation of the accounts both to conceal surpluses and make them harder to access in future is, Tsang should consider, one reason for distrust of government. As it is, the Future Fund was created with the express purpose of not being touchable for at least 10 years and now comprises HK$219 billion of the fiscal reserves. The fund is supposed to invest longer term, but no details of its performance are available.

Meanwhile, the return on the other reserves are estimated at a miserable 3.3 per cent for 2016 and 2.6 per cent to 3.5 per cent average for 2017 to 2020 – barely above the projected rate of consumer price inflation (2.5 per cent). Clearly these funds would be better invested if distributed to the public for their pension plans.

Tsang again misleads by stating that the fiscal reserves “are all we have at our disposal”, conveniently forgetting the HK$600 billion retained profits of the Monetary Authority, which is an arm of government and does not need these for exchange rate management. As for the statement that “our fiscal reserves are the mainstay of our economy”, this can only be described as arrogant nonsense. They have become a fetish designed to limit spending on social needs. Meanwhile, lavish spending on capital projects with little or no financial or economic return steams ahead to satisfy “one country” or local vested-interest demands.

Tsang peppered his speech with references to the increasing burdens of an ageing society. Future belt-tightening was called for to avoid resulting deficits. Yet Tsang’s own forecasts for the coming five years show capital spending rising by 50 per cent, to HK$132 billion, while operating spending rises just 25 per cent. So, clearly, we are going to have to pay for more mega projects with minimal returns while health, welfare and education are squeezed.

Tsang did not go into specifics other than mention a desalination plant, a bizarre project for which no economic case has been made and for which there is surely no political justification.

The budget does contain a number of small measures to help the elderly but these are minor compared with tax cuts. And with all the emphasis on an ageing society, why not some real effort to raise the extraordinarily low fertility level by reducing the opportunity costs of raising children? Tsang’s idea of investing in the future is clearly one of pouring concrete, not investing in a new generation through childcare facilities, job protection for nursing mothers and other relatively low-cost ways of addressing this aspect of the ageing problem.

The government talks a lot about the problem of income disparities. These are clearly most visible among the elderly and young, low-income families. Yet this budget will, if anything, make matters worse. Nor will any amount of hand-wringing over riots, or budget crumbs for SMEs, counter the widespread public view that big business, whether property, construction or retailing, is always favoured by government policies.

Philip Bowring is a Hong Kong-based journalist and commentator

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