BACK

POLICY PAPER

MORE PAPERS

Richer than you think

"Letter to Hong Kong" from Dr Patrick Shiu, Chairman, Hong Kong Democratic Foundation, broadcast on 28th May, 1995 on Radio 3.

Good morning. A lot of people I talk to feel less well off these days. Some people feel that their earnings have not kept up with inflation. Others are afraid of losing their earnings altogether through unemployment.

My subject today may be some comfort to these people. For I am going to talk about a source of wealth in which we all share: the wealth of the Hong Kong Government.

I shall show today that our Government has a lot more wealth than it would have us believe. I shall also ask whether the Government is accounting to us properly for this wealth.

So how much wealth does the Hong Kong Government have? Let me go through the various items one by one.

The best known item of wealth is the Government's fiscal reserves. In his March budget speech the Financial Secretary revealed that the fiscal reserves are currently HK$148 billion, a very large sum.

Yet the fiscal reserves are not the whole story. Since 1986, half of the net proceeds from Government land sales have been paid into a Land Fund for the future SAR Government. The balance on the Land Fund is now around HK$80 billion.

Since this money will belong to our Government in just over two years time we should really count the Land Fund as a sort of deferred fiscal reserve.

But there is more. Hidden away in the footnotes of the Government's consolidated accounts you will find another large figure. This is the Government's investment: advances to the Housing Authority, shares in the MTR, and KCRC, and others. Total: HK$180 billion.

This is the cost figure. I have no idea what the current value of these investments is. I believe that the Government does not know either. However it is likely that HK$180 billion is a very conservative figure. The property of the Housing Authority alone is likely to be worth more than this.

What else? Well, there is the Exchange Fund. When the note-issuing banks deposit US dollars with the Exchange Fund, they are issued certificates of indebtedness in return. These assets and liabilities of the Exchange Fund cancel out. But the Exchange Fund is has a very large balance of retained earnings. These currently stand at more than HK$130 billion. These retained earnings must be included in the wealth of the Hong Kong Government.

Is there anything else? There are all the Government's other assets: the land and buildings, water works and port, and so on. In other countries many such assets have been privatised, raising large sums for their respective governments. These off-balance sheet assets of the Hong Kong Government could be worth billions more.

Now there may be some hidden liabilities along with these hidden assets. But from this quick calculation we arrive at a figure for the net wealth of the Hong Kong Government of at least HK$540 billion. Probably the true figure is much larger. How much is HK$540 billion? This sum is equivalent to the Hong Kong Government's expenditure for three years. Or under current market condition for residential price of HK$5400 per square foot, this sum can buy 100,000,000 square feet of new residential building, about ten times of size of Taikoo Shing. This sum can buy Hong Kong's two largest publicly listed companies, the Hongkong Bank and Hong Kong Telecom.

Despite this huge reserves, the wealth of the Hong Kong Government will become larger still. On present policies, the Financial Secretary forecasts another HK$100 billion in fiscal reserves alone by 1999.

What are we to make of our Government's vast wealth? Well, I will make one point right away. Those Chinese officials who have been criticising the Financial Secretary for imprudence are simply talking nonsense. We have more than enough money for the airport or for virtually anything else.

But where is the money? The Government does not tell us very much.

Most of the cash is invested by the Exchange Fund. But, unlike some developed country central banks, the Exchange Fund doesn't publish proper accounts. The investment allocation is kept secret. The Land Fund reveals even less. As for the non-investment assets, in many cases the Government itself keeps no full record.

Well, I think it would be reasonable for the Government to tell us where all this money is. After all, it is ultimately our money.

For some years, the Hong Kong Democratic Foundation has been asked the Government to publish a proper balance sheet showing all its assets and liabilities fully valued. This is no more than the Government of New Zealand has been doing for several years.

But then I have one more question. Does the Government really need HK$540 billion of our money? Could it make do with a little less?

If the Government does not need the full HK$540 billion, it could reduce our taxes. In particular, the Government could reduce the very high effective tax we all pay through the premiums it charges on land.

Alternatively, the Government could spend more on the services that our society badly needs. More must be done for the elderly following the abandonment of the old age pension scheme. Our primary and secondary schools need more resources. Then there is urban renewal. There are many things to be done.

The thought I would leave you with is this. There is no point in our Government accumulating ever greater and greater wealth. It is time that the Government returned some of this wealth to the people from whom it was taken and to whom it really belongs.