The function of the Budget is to facilitate and implement master plans of the government, with adjustments in accordance with the changes in political and economical circumstances. However, Donald Tsang, the Chief Executive, has confined himself as a leader of the “transitional government”, thus evading many long-term development problems in his recent Policy Address. This poses a challenge for the Financial Secretary to make amends and set up a solid base for the long-term development of Hong Kong in the forthcoming Budget.
The Consolidated Account of the government had recorded deficits for many years consecutively since 1998. In 2002, the Task Force on Review of Public Finances concluded that the public finances of Hong Kong are confronted with structural problems, i.e. over-reliance on property market related incomes and lack of flexibility on government expenses. As a result, the foremost task of the next few Budgets would be to eliminate fiscal deficit.
In the same year, Anthony Leung, the former Financial Secretary, set three targets for the public finances in 2006/7: to attain a balanced Operating Account, to restore balance in the Consolidated Account, and to reduce public expenditure to 20% of GDP or below. He also suggested that it should be sufficient to have fiscal reserves equivalent to around 12 months of government expenditure to meet operating and contingency requirements.
Over the years, the government has achieved these targets. The public expenditure in year 2004/5 has been reduced to below 20% of GDP.; and from 2005/6 onwards, balances have been achieved in both Consolidated and Operating Accounts, and the government expenditure has shrunk to less than $200 billion as well.