Budget Speech

Public Finance

Article 107 of the Basic Law

208. Our economy remained sluggish in the past few years because of the epidemic, resulting in huge fiscal deficits.  Some people have raised concerns as to whether the Government's fiscal management conforms to the requirement of Article 107 of the Basic Law.  Article 107 states that the Government should follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product.  I would like to offer some views here.

209. Hong Kong is a small and open economy with scarce natural resources.  It is, therefore, unavoidable that our economic performance is susceptible to external forces.  When the external environment worsens or a natural disaster occurs, the downward pressure on Hong Kong's economy will intensify, which may result in a substantial drop in government revenue.  The primary policy objective of the Government is striving for the well-being of the people.  To this end, we need to launch counter-cyclical measures during economic downturns to stabilise the economy and safeguard people's livelihood, so as to relieve the pressure on them.  With an increase in expenditure and a decrease in revenue, the Government will record a fiscal deficit.  In times of an economic upturn, government revenue from tax and other sources, on the contrary, will increase, while the need to increase expenditure will also be less imminent.  A surplus will be seen under such circumstances.

210. Therefore, in analysing the Government's financial position, we should look at the entire economic cycle rather than focus on the short-term performance.  The Government's financial position has been volatile over the past two decades or so.  Some may consider that the Government runs a structural surplus during economic boom and slips into a structural deficit in times of economic downturn.  There are limitations in either one of these conclusions as they are based on observations of short-term performance.  In my opinion, it is more appropriate to assess the Government's financial position on the basis of economic cycle rather than individual financial year.  Since Hong Kong's return to our Motherland, we have passed through three economic cycles of varying durations, with the most recent one being the longest, lasting for more than 10 years.

Level of Fiscal Reserves

211. As to the appropriate level of our fiscal reserves, public opinion also varies.  Some people think that the more, the better while others are of the view that the Government should not keep excessive social resources but allocate them to the people and the market as much as possible, and in this way, higher economic efficiency will be achieved.  I think that our fiscal reserves have several functions, including:

(a)	as savings for rainy days, that is, keeping a certain amount of savings for use in times of adversities to support our people and enterprises, thereby maintaining social stability;
(b)	helping safeguard financial stability; and
(c)	generating investment returns.  These returns from our reserves are one of the important sources of government revenue.  The proper use of our reserves facilitates the development of our economy and industries.

212. Taking Hong Kong's previous financial position in times of adversity as a reference, I consider that our fiscal reserves are currently maintained at a prudent level.

Bond Issuance

213. Through issuance of bonds, the Government has been fostering the development of our bond market and attaining other policy objectives such as financial inclusiveness and promoting green and sustainable development.

214. In fact, the Government's outstanding debts remain at a low level, currently accounting for only four per cent of GDP, far lower than most of the other advanced economies.  Against this background, Hong Kong should make good use of the room for bond issuance to support and expedite economic development while creating capacity and investing for the future, with a view to enabling early sharing of the fruits of economic development with the public.

Green Bonds

215. The Government Green Bond Programme (GGBP), which has won considerable acclaim from international investors since its launch, has become a benchmark for issuance of green bonds in the region.  The Government will further expand the scope of the GGBP to cover sustainable finance projects.  The HKMA will announce the details in due course.

Infrastructure Bonds

216. Infrastructure is one of the key areas for sustained economic development and improvement of people's quality of life.  I propose the setting up of an Infrastructure Bond Scheme to enable us to better manage the cashflow needs of major infrastructure projects and facilitate the early completion of projects for the good of the economy and people's livelihood, so that members of the public can enjoy the benefits early.  Meanwhile, we will also explore public participation in bond subscription for our people to develop a "sense of participation" and a "sense of gain" in their support for Hong Kong's long-term development projects.  I will introduce the relevant proposals to the LegCo in 2023-24.

217. Even with further bond issuance in future, we will still strive to keep the government debt-to-GDP ratio at a relatively low level, which is expected to remain below 10 per cent by the end of the MRF period in 2027-28.  I have to emphasise that we will continue to adhere to the fiscal discipline of keeping expenditure within the limits of revenue.  Proceeds from bond issuance will not be used for funding recurrent expenditure.

 

 

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