Hong Kong is in the midst of a battle against a pandemic that has slipped out of control. Many businesses have been completely or partially shut down for months. Bans on passenger flights from eight countries — Australia, Canada, France, India, Pakistan, the Philippines, the UK and the US — have been extended again, this time to April 20. All are hoping for an imminent turnaround, given the huge support of the motherland in fighting this battle, but much uncertainty remains.

Against this backdrop, the financial secretary is forecasting that the economy will achieve growth of 2 to 3.5 percent. This optimism is based on the SAR government’s countercyclical fiscal measures costing HK$170 billion ($21.79 billion), which include a range of tax relief measures covering rates, the salary tax, profit tax; an extra half-month allowance for various welfare and benefit recipients, a HK$10,000 Consumer Voucher Scheme, etc.

Thanks to years of fiscal prudence, Hong Kong still has a large fiscal reserve with which the government can soften the blow from the pandemic. But with so many businesses now under half-shutdown or full shutdown mode, where will consumers spend the money from the consumption vouchers? There is a case for allowing businesses to operate or operate longer hours provided that the necessary safeguards are in place, such as requiring all customers to be vaccinated and maintaining a sufficient social distance.

Flight bans are very costly to an international financial center. More nuanced management of flights would help

The latest budget is not short of innovative ideas. The new tax deduction for domestic rental expenses offered to taxpayers who are not owners of domestic properties is a case in point. Another is the proposed rental enforcement moratorium for tenants who work in sectors hit by the pandemic, which will also provide timely relief. More important is the multipronged approach in enhancing Hong Kong’s financial center status, which includes developing the bond market and family office businesses, etc.

Still, the headwinds from the flight bans, the shutdown of businesses and dramatic cuts in operating hours, the continuing wave of emigration, and continuing bottlenecks in global supply chains will sharply affect growth. Fitch Ratings recently reduced its forecast of Hong Kong’s economic growth to 1.5 percent in view of the tightened social-distancing measures. At that time, the extension of the flight bans was not yet announced.

The midyear population estimate for 2021 was 7.39 million, down from 7.48 million in 2020 and 7.51 million in 2019. The downward pressure on Hong Kong’s population and labor force is likely to continue. This will have a dampening effect on local demand, including demand for housing. The SAR government, however, is stepping up the land and housing supply. While the effort to increase public housing is certainly necessary, the projected firsthand private residential flat supply for the next three to four years, at 98 000 units, could lead to a glut. Presently the greater need, as far as private housing is concerned, should be on improving quality and not so much on quantity. We need to restart the trading-up mechanism, so that households will trade into roomier, better housing. Unfortunately, this mechanism has so far been hampered by the special stamp duties. It is disappointing that the financial secretary has reaffirmed the government’s intention to continue with these “demand management measures”, which have been shown empirically to have a side effect in curbing the supply of existing homes and impeding trading-up activities.

Recurrent healthcare spending for fiscal year 2022-23 is expected to increase by 30.4 percent over the year. This is a good direction. The Hospital Authority has seen a rather sharp increase in manpower turnover, apparently reflecting a brain drain from public hospitals to private hospitals. It is imperative for the government to reverse this loss of experienced and skilled medical staff. The public hospitals have always taken care of the most complicated patient cases that are costly to attend to. We have seen a rise in medical mishaps in the last few years. Giving the Hospital Authority more resources is a good start.

Another policy area that has attracted a rather sharp increase in spending is social welfare, which is expected to grow by 14.7 percent in 2022-23 over the year and 71.1 percent since 2017-18. Unfortunately, the money spent is not necessarily cost-effective. It was revealed that the senior management of some welfare organizations had enjoyed very fat salaries, with one person grossing HK$3.12 million a year, while rank-and-file employees earn meager incomes. As the scandal over child abuse in the case of the Hong Kong Society for the Protection of Children shows, the management of the welfare organization is sometimes quite poor. The government certainly needs to have better monitoring and perhaps tighter regulations.

If the SAR government’s optimistic economic forecast is to materialize, the government has to better weigh costs against benefits for each policy move using the latest data. In general, flight bans are rather extreme. Does the government monitor the infection situation of each of the countries subject to the ban? Can the number of flights per week be reduced, or the number of passengers on each flight be reduced, instead of the ban? Flight bans are very costly to an international financial center. More nuanced management of flights would help.

The author is director of the Pan Sutong Shanghai-HK Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.