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Published: 01:12, February 09, 2023 | Updated: 09:34, February 09, 2023
Consumption vouchers should be an integral part of budgets
By Tony Kwok
Published:01:12, February 09, 2023 Updated:09:34, February 09, 2023 By Tony Kwok

The biggest talk of the town now is whether the financial secretary will continue to distribute consumption vouchers to every resident in his budget announcement on Feb 22.

There are strong voices both pro and against. For those who are against it, they quote Article 107 of the Basic Law, which stipulates that the Hong Kong Special Administrative Region government should follow the principle of keeping expenditures within the limits of revenues in drawing up its budget, and should strive to achieve a fiscal balance and avoid deficits. Since the SAR government has been suffering from deficit budgets for the last three years while trying to overcome the COVID-19 crisis, it is time to reduce government expenditures and get the budget back in balance. Hence, the government can no longer afford the huge expenditure on consumption vouchers.

Those who support the continued distribution of consumption vouchers argue that Hong Kong is still suffering from economic contraction, with the real GDP growth in the last quarter being minus 4.2 percent. Although the unemployment rate has dropped to an acceptable level of 3.8 percent, the reality is that most of the newly employed are receiving wages less than what they earned before. Many people are still living in hardship, and many small and medium-sized enterprises are struggling to survive. The government, therefore, needs to take steps to alleviate the people’s pressures arising from the poor economy and relieve many needy people’s financial burdens. As Agnes Chan, deputy chairman of the Hong Kong General Chamber of Commerce, a business chamber representing multinational companies in Hong Kong, pointed out: “We need the booster. It is like someone who has been sick for a long time and just recently recovered. You need to continue the medicine in order to help the person to recover fully.”

I believe that the real question is whether the government can afford it without having to present another deficit budget. The proposed consumption voucher of HK$5,000 ($637) per resident would cost the government HK$30 billion, a large sum by any standard. But this is only 3.7 percent of the total government expenditure for 2022-23 estimates of HK$807.3 billion, and therefore is prima facie affordable for any government budget.

According to the government budget’s public consultation paper, the government’s fiscal reserves by March 31 will total HK$890 billion, and the forecast by March 31, 2024, is HK$933 billion. In other words, the government forecast is that our fiscal reserves will increase by HK$43 billion this year. Hence the distribution of consumption vouchers costing HK$30 billion would not jeopardize our fiscal reserves.

Another way to look at it is that all Hong Kong residents are “shareholders” of the Exchange Fund run by the Hong Kong Monetary Authority. We are therefore entitled to enjoy the annual dividend of our fund just like any of our investments in the stock market. Our Exchange Fund reserves stand at HK$4.01 trillion, and according to the government’s 2022-23 estimate, the investment income from the Exchange Fund is HK$78.4 billion. There is nothing wrong morally to draw out this investment income to share among residents as it would be more than adequate to cover the expenditure on consumption vouchers of HK$30 billion.

The fact is that since Hong Kong’s return to the motherland, the SAR government has been giving out relief measures, so-called sweeteners, as part of its budget every year with no exception. So the question now is not so much whether the government can afford to give out sweeteners this year, but rather, in what way and by how much.

In the past, the sweeteners were mostly in the form of reductions/waivers of taxes and rates. For salary-tax reduction, it benefits only 915,000 taxpayers, with many of those in the upper tax bracket simply leaving the reduced tax in their bank accounts without increasing their spending. Furthermore, the financial benefit of the reduction of the salary tax would come only at the time of paying taxes around January next year, which is many months away and would have no immediate effect in stimulating the consumption market now. The same goes for a reduction of rates, which benefits only property owners, with major property developers being the biggest beneficiaries. Again, those who enjoy the reduction of rates may not care to spend their windfalls.

But the issue of consumption vouchers is the fairest distribution to all residents, and also forcing them to spend money to stimulate the economy. The effect is also immediate as the administrative system is already in place to enable fast distribution of the vouchers within days. When the government introduced the consumption vouchers last year, it said that it can have an immediate stimulus effect in boosting the economy by around 3 percentage points. Furthermore, it would enhance the profits of the retailers and business sectors, which would undoubtedly enhance the profit tax that goes back to the government Treasury.

Hence it seems that the consumption voucher is the best economic equalizer and the most effective sweetener to immediately lift people’s quality of life. The infrastructure to implement this sweetener program is already in place, and it would not create an additional administrative burden for the government. It is a proven fast and sweet financial aid to the needy.

The consumption vouchers provide direct and quick benefits, particularly to the lower-income groups, as they can use the vouchers to buy their daily necessities. The use of vouchers could be expanded to cover payments of public utility bills, public housing rentals, medical expenses, etc, so everyone can find a way to benefit themselves, and in turn, stimulate the economy.

However, I propose that the consumption vouchers should be restricted to local consumption only. There is little point in subsidizing people to use consumption vouchers for overseas travel or holidays, which largely benefit foreign countries’ economies. Of course, tight measures should also be in place to exclude those who have emigrated abroad from receiving the vouchers.

Clearly, the government should strive to maintain a balanced budget this year. One way to do it is by increasing revenue. Consideration can be given to increases in taxes such as the bets and sweepstakes tax, motor vehicle first registration tax, and dutiable commodities such as tobacco, hard liquor, perfumes, etc. There is room to enhance the list of dutiable commodities to include luxury goods.

Sooner or later, the SAR government has to tackle the problem of a narrow tax base and the volatility of revenue due to overreliance on land premiums. The introduction of a sales tax seems to be the consensus solution from global experience and tax experts. However, a sales tax could seriously affect lower-income groups. The distribution of consumption vouchers could be used as an experiment to act as a buffer for the lower-income group in the event of launching the sales tax.

There is clearly a strong public expectation of the continued distribution of consumption vouchers in the coming budget. In the future, perhaps the government could negotiate with the Monetary Authority for the consumption voucher expenditure in the budget to be paid through the Exchange Fund. Although the Exchange Fund’s investment loss last year amounted to HK$202.4 billion, the recent announcement from the Monetary Authority is that just for the month of December last year, the Exchange Fund recorded a gain of HK$23.4 billion. Its average investment income over the years is 4.8 percent, which amounted to HK$180 billion. In other words, the HK$30 billion required to carry on the distribution of the consumption voucher expenditure is insignificant, given our healthy economic big picture, as it is clearly affordable without jeopardizing the stability of the Exchange Fund. As such, the distribution of consumption vouchers every year could be linked to the profit and loss of the Exchange Fund and become a norm. Most importantly, the sharing of this annual welcome dividend among all residents would enhance their loyalty to the HKSAR government and their sense of belonging to a place where they can feel protected.

The author is an adjunct professor of HKU Space and a council member of the Chinese Association of Hong Kong and Macao Studies. He is an international anti-corruption consultant and former deputy commissioner of the ICAC.

The views do not necessarily reflect those of China Daily.

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