Hong Kong Budget 2018: “New Fiscal Philosophy” brings no new solution to city’s housing and healthcare problems

• It is good to save for the rainy days, but the question is how much cash should be piled up. This year, Hong Kong’s estimated fiscal surplus will reach record high at HKD 138 billion, as much as 5.2% of its GDP. Against this background, Hong Kong’s new administration has announced its first budget with a very obvious sense of purpose and change, which has been labelled as a “New Fiscal Philosophy” to increase spending.
• The public’s understanding of the “New Fiscal Philosophy” is associated to the two pressing social problems in Hong Kong, namely housing and healthcare, but their expenditures have hardly risen. Instead, spending on education and social cohesion has increased their contribution to the total budget expenditure. Besides, moving towards a diversified economy has long been a goal for the government. Innovations and technologies have been placed ahead of the four key pillar industries this year. The government has also come up with new initiatives for financials beyond the much mentioned weighted voting rights (WVR) structure for equities to subsidizing first time bond issuer and green finance.
• Our evaluation is that the budget might look good for Hong Kong’s future as it supports education and some new industries but it is clearly disappointing as regards Hong Kong people’ key social concerns. More specifically, the tone on housing barely changes from last year’s budget. This same plan could mean new residential unit supply will finally exceed the increase in the number of households needing housing, but the actual private unit completion has always been below forecast so it is hard to find a reason for a better supply pattern this time. The other looming structural problem is healthcare and the rapidly aging population. Population of 65 years old and above will increase from 16% in 2017 to 26% in 2030. However, the share of heath care expense to total government expenditure has decreased from 14% to 13%. 
• All in all, the “New Fiscal Philosophy” seems to refer to Hong Kong’s future more than the present: more expenditure in education, new technologies and financial market innovations but hardly anything left for Hong Kong’s social problems, especially housing and health care.

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