Published: 23:52, February 22, 2024 | Updated: 09:44, February 23, 2024
Fiscal deficit can be reduced with sensible moves
By Tony Kwok

The Hong Kong Special Administrative Region government has run fiscal deficits for four consecutive years, with the fiscal reserves dwindling to HK$661 billion ($84.5 billion) at the end of October 2023. The government needs to raise revenue and reduce expenditures to restore fiscal balance as it must comply with this statutory requirement of the Basic Law.

At a time when calls for a reduction in government department expenditures are increasingly vocal, it is astonishing to note that the Highways Department is seeking funding approval from the Legislative Council to spend HK$1.13 billion for an evaluation study on a proposed highway as part of the Northern Metropolis project. Even more shocking is that the study is expected to take 38 months, a duration described by legislator Lo Wai-kwok as “turtle speed”! He pointed out that many mainland cities in the Guangdong-Hong Kong-Macao Greater Bay Area complete similar road projects within a few years, whereas Hong Kong requires three years just for a preliminary study!

The proposed highway is a crucial component of the government’s plan to develop 30,000 hectares of land in the northern New Territories, near the boundary with Shenzhen. This development aims to create 500,000 flats and 500,000 new jobs. We all recognize the significance of this project for Hong Kong’s future growth and prosperity. Hence, speed is of the essence. Therefore, spending three years on a preliminary study alone is unacceptable.

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The most significant portion of the HK$1.13 billion sought for the study is on consultancy fees. The consultancy study would involve identifying the alignment, layout, preliminary design and land requirements for the highway. It would also encompass environmental and cultural heritage impact assessments and the associated mitigation measures.

Indeed, there should be sufficient in-house expertise within the Highways Department and other public works and environmental protection departments to undertake this task themselves. Moreover, it presents an invaluable training experience at the highest level, rather than outsourcing it to consultancy firms that only a few major Western companies now dominate. The reliance on external consultants is a remnant of the traditional practice under British rule, benefiting mainly British and other Western companies while relieving public officials of responsibility for the construction project.

For such an important project, there is an inherent risk that once the project is in the hands of the consultancy firm, the government would lose control over its findings. It is not inconceivable that the selected Western consultancy firm could be politically maneuvered to come up with exaggerated problems, such as environmental concerns, making the project untenable or providing grounds for public objection, causing undue delays to this critical project.

A joint departmental task force can be established to handle the consultancy work, thereby achieving enormous savings for the government coffers. The Highways Department claimed to have consulted various departments and that there is insufficient resources and expertise to undertake this project internally. This sounds very much like a typical bureaucratic excuse to shirk work!

We must learn from the bitter lessons of the Hong Kong-Zhuhai-Macao Bridge saga, when environmental data were misrepresented to justify a judicial review, resulting in a nine-month delay and an additional HK$8.9 billion cost.

The financial secretary should consider implementing a new policy that mandates government departments to undertake all tasks within their spheres of responsibility and to refrain from outsourcing projects to external consultants except under extraordinary circumstances. Such an approach would yield substantial cost savings for the government and create a learning culture for the departments and their employees.

The recent disastrous launch of the HK$500 million e-booking system by the Leisure and Cultural Services Department is but one example of wasting taxpayers’ money on outside consultants for government projects, resulting in significant public dissatisfaction.

The financial secretary should consider implementing a new policy that mandates government departments to undertake all tasks within their spheres of responsibility and to refrain from outsourcing projects to external consultants except under extraordinary circumstances

Another example is the Department of Justice’s practice of briefing out cases to private lawyers for prosecution. In many cases, in-house counsels study the cases and decide to prosecute, only to pass them on to private counsels who need to review them from scratch. This duplication of efforts and unnecessary expenditure are wasteful and unjustifiable. It would be more efficient and cost-effective for the in-house counsels, who decide in the first place, to handle the prosecution themselves. This approach would also enhance their courtroom experience and career development.

On the revenue side, it is crucial to strengthen law enforcement to detect tax evasion cases. Many retailers and self-employed individuals reject e-payments and insist on cash to avoid paying taxes. This evasive practice is an area in which artificial intelligence (AI) can be of assistance. If the Inland Revenue Department installs an AI program that analyzes the characteristics of retailers and restaurants, such as their location, size, number of employees and record of wholesale supplies, it can compare this data with standard tax levies. This would help identify potential tax evaders for further investigation and tax recovery.

Fraud cases currently dominate crime statistics, which take up significant investigative resources. Government prosecutors should request the court, upon conviction of economic crimes, to order the defendants to repay the proceeds of the crime and the costs incurred by the police during the investigation. This approach would bolster the government’s coffers while acting as a strong deterrent against those responsible for economic crimes.

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Although the financial secretary has tempered public expectations of further distribution of consumption vouchers in the upcoming budget, there is still room to reconsider this approach. Instead of including it in the budget, the consumption vouchers could be funded through the annual profits of the Exchange Fund. In 2023, the Exchange Fund recorded an investment return of 5.2 percent, amounting to HK$212.7 billion. There is no valid reason why a portion of this investment return — say, 50 percent — cannot be distributed among Hong Kong residents based on need, given that they are the “shareholders” of the Exchange Fund. This approach would not have an impact on the budget deficit.

Furthermore, it would enhance residents’ loyalty to the government and their sense of belonging to Hong Kong, as well as alleviate the financial burden on residents, particularly the vulnerable, as the local economy is still struggling to recover fully. However, stricter requirements should be set to ensure that the consumption vouchers are used for local consumption only.

The author is an honorary fellow of HKU Space and Hong Kong Metropolitan University, and a Chinese Association of Hong Kong and Macao Studies council member.

The views do not necessarily reflect those of China Daily.