Revealing the horrifying truth about the fiscal budget.
2025-3-6
The Financial Secretary announced last week that Hong Kong’s fiscal deficit in 2024/25 was 87.2 billion, with fiscal reserves of 647.3 billion. The financial situation is not too bad. Is it true? (The following contains some figures, which may be boring, but they are of great significance. Please be patient and read the full article.)
Let me first explain that the accounting standards used by the Hong Kong government are close to the "cash flow" type, not the "receivables and payables" type used by the business world. That is, cash received (including loan proceeds) is included in income; cash paid out (including loan repayment) is considered expenditure.
The government's announcement of a fiscal deficit of 87.2 billion in 24/25 actually includes a withdrawal of 15 billion from the epidemic prevention fund and a net income of 107.9 billion from bond issuance. These are considered cash receipts, but they are not real income. Excluding these two "revenues", the deficit calculated on the basis of "receivables and payables" this year is 210.1 billion.
The government claims that the fiscal balance will only have a slight deficit in the next five years, and there will be a surplus starting in 2028/29. But it also includes "revenues" from bond issuance and clawbacks. Excluding these "revenues", there will be a deficit of 262.2 billion in 2025/26, and fiscal reserves have dropped to 262.2 billion, which can only cover the government's expenditure for 3.6 months; by 2029/30, it will be even more negative assets. Please see the table below for details. Although, in addition to fiscal reserves, the government also has various other reserves and Exchange Fund reserves, these are Hong Kong's last lifebuoys. Once they are used or even used up, Hong Kong's finances will be really unimaginable.
Of course, the initiative to solve the government's fiscal deficit problem lies with the government. The business community should also try its best to cooperate and consider the overall interests of Hong Kong. But the first condition is to clearly disclose the truth and its seriousness to the public. Concealment, delay, etc. will only worsen the situation. Everyone is working towards the common goal of building a better Hong Kong.
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