With the release of the budget, measures such as the $5,000 electronic consumption vouchers and the increases in stamp duty on stock transfers and vehicle licence fees for private cars have attracted much attention. Amid the pandemic, people and businesses are having a hard time. The government needs to make good use of resources to provide precise relief and support for the economy, while at the same time it has to find ways to increase revenue and reduce expenditure to cope with the pressure on public finance. The budget estimates that a deficit of around 100 billion dollars will be recorded in the new year, and in the next few years, the Operating Account will also record an annual deficit of tens of billions of dollars. The red light for a structural deficit is on, but the government is constrained by the pandemic and has not taken any drastic action, and can only address the shortfall by issuing bonds and ploughing back future fund incomes to reduce the size of the deficit. These stopgap measures can theoretically help the government buy time for consensus building to broaden the tax base while waiting for the global economy to improve. However, when it comes to reform, if the government continues to dilly-dally and be all talk and no action, the public finance crisis will only deepen further.
In the past two years, Hong Kong has been hit by the trade war between the US and China, the anti-amendment storm and the COVID-19 pandemic. As the economy has been in deep recession and the number of unemployed people has surged, the government has poured hundreds of billions of dollars into measures that ''support the economy and maintain employment'', so the public finance situation is also facing serious challenges. Government deficits in the year 2020/21 reached a record high of $257.6 billion, and the deficit in the new year is estimated to be as high as $100 billion. The government cannot sit back and do nothing when people and businesses are having such a hard time. It must introduce counter-cyclical measures to support the economy and relief measures to help the public. However, the government also has to manage the public finances prudently to cope with the huge deficit pressure.
While the public is concerned about the immediate relief measures, the government must look farther ahead and focus on the long-term sustainability of public finances. Hong Kong's ageing population has led to a significant increase in social welfare and health care spending over the past decade. In order to invest in the future, investment in education and scientific research is also essential. Hong Kong's tax base is narrow and overly dependent on revenue from land sales and others. For many years, there have been calls to broaden the tax base, and various proposals have even been put forward. But dipping into the public purse is always a political challenge. When the economy is good, there is ''no urgency'' to do so. When the economy is in recession, there is ''no room'' to do so, and as a result, the issue of broadening the tax base has been put on the shelf for a long time.
The government's proposal to raise the stamp duty on stock transfers from 0.1% to 0.13% and to significantly increase the first registration tax and vehicle licence fees for private cars—the first registration tax has remained unchanged for more than 10 years—has been described by some as a ''bold move''. However, its effect on supplementing government revenue is actually limited. In terms of cutting costs, the government's freezing of the manpower of the civil service and the requirement for departments to reduce recurrent expenditure by 1% are also a drop in the bucket. By ploughing back the housing reserve and the investment income of the future fund into the account, which will involve more than $40 billion a year, the government can make the fiscal deficit look smaller. However, this is only a ''financial manoeuvre'' to a certain extent, and can only help society find more time to forge a consensus on how to broaden the tax base in the long run.