Tuesday, March 04, 2014

Expense or Investment?

The government-appointed working group on long-term fiscal planning warned that Hong Kong could be facing deficits in a few years time, and as heavily indebted as Greece - if the city’s spending grows at the current pace.  

The government is very happy to hear that, because it gives the government more excuse to spend less, and certainly not to embark on major investments. On face value, it makes sense.  The more you spend, the less you have.  Hence it is prudent for the government to spend less.  

However, this line of thinking does not take into account that investing in education can improve the quality of the work force, raise the productivity of the economy, increase national product, generate more taxes, and increase income for the government.  Similarly, investing in medical care can improve the health of the population, leading to a similar increase in income in the future.  The key is whether the money is spent properly.  A deficit in the short term (because of increased investment) can lead to a healthy and long lasting  surplus in the long term. 

On the other hand, if the education and medical systems are not properly maintained and improved, productivity decreases, resulting in a decrease in income.  A surplus in the short term (because of reduced investment) can lead to serious and long lasting deficit in the long term.  

Unfortunately, our officials usually do not have their sights set on the long run - they probably do not expect to stay in position for that long - and often opt for good, short term performance instead.  That seems to be what is happening.  So sad.  


No comments: