Does “Future Fund” have future?

At the beginning of this year, Hong Kong Financial Secretary Tsang Chun-wah put forward a conception of “Future Fund” on the base of the Working Group on Long-term Fiscal Planning’s research on Hong Kong public finance. This group, comprising officials headed by Secretary-general of Financial Services and the Treasury Bureau and non-officials elites from related background, was delegated to draw scientific plans of public finance in response to an aging Hong Kong society and governmental long-run fiscal expenditure.

The “Future Fund” was proposed as an imitation of foreign countries. Fund accumulates from the land fun, adding with annual surplus, and underpins infrastructure construction and boosts economy despite government’s continuous deficit in the future.

According to the government bulletin, given the increasing aging population and labor shortage, if the current tax system and rate continue and no external crisis happen, the revenue would increase at an estimated 4.5% on average per annum in next two or three decades.

However, the structural deficit would occur in 15 years at best on condition that the government doesn’t add more benefits, only subject to population and price changes. Facing the deficit risk, Tsang was still positive. In the speech on 26, February, he stated that there was more than HK$700 billion fiscal reserve, with HK$220 billion of land fund, around HK$130 billion for specific use and approximately HK$400 paid for daily operation. Hong Kong’s economy and the government’s revenue would keep going up and expenditure was allowed to increase but its growth must match that of revenue. “By correspondingly controlling expenditure increase, stabilizing revenue and expanding income sources, the fiscal dilemma could be avoided.” said Tsang.

“I think this fund is a good direction but impossible to be carried out”, Chong Wylunn said, former associated chief reporter in Sing Pao and journalist in Finet, “Future Fund is a meaningful warning Financial Secretary gave to Hong Kong government from the politic perspective for not overspending on welfare expansion and so forth”. He pointed out that the fund, if set up, must hunt for a new project that would bring at least 7% return per annum; otherwise, the original investment could not double to more than HK$400 billion. Additionally, land sales contributed around HK$60-80 billion in contrast to 10% annual growth of recurrent expenditure comprising education, medical treatments and social welfare, housing. Meanwhile, considerable pension plus annually paid subsidy allocated to civil servants was estimated to amount to HK$900 billion in foreseeable future. “Apparently, revenue can’t cover expenditure in the long term, let along extra money for the fund.” he explained.

Chan Wysun, chief reporter of Ming Pao’s financial section, agreed that the current financial reserve can only disburse recurrent expenditure. “The government initiated well but it remains uncertain because we have no idea about implementing details.” He said that take inflation into account, the actual amount of money in action was about HK$200, roughly enough for 5-8 years at best. Although the government was in the black now, blind public service constructions at a high cost would bring about troubles. “Imitation of Australian Future Fund is worth considering if Hong Kong will encounter huge deficit in the future, but is it a signal that Hong Kong is to be another Australian for Tsang put is forward now? If so, I approve of steps ahead.”

The government had announced a group further discussion held in July, focusing on how to reinforce governmental assets management and interpret research to residents for a year-end report to Financial Secretary. But so far, there is no following-up official information.

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