Basic Law mandates balanced budgets for Hong Kong, says Bar chairman
Hong Kong's Basic Law requires the government to keep expenditure within revenues and avoid deficits. Bar chairman José Antonio Maurellet SC warns that persistent deficits globally have led to rising debt, higher interest payments, and reduced spending on public services, urging Hong Kong to stick t
Article 107 of Hong Kong's Basic Law requires the government to "follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product", according to José Antonio Maurellet SC, chairman of the Hong Kong Bar Association.
Writing in The Standard on 13 November, Maurellet said that governments around the world, from the United States to Japan and Europe, had allowed expenditure to outpace revenue and run persistent fiscal deficits, causing debt to increase exponentially in one generation. This creates a vicious cycle, he argued.
As debts increase, a growing share of the budget goes towards paying interest on that debt, leaving less money for education, welfare or investment in the future, Maurellet wrote. As overall debt rises, creditors begin to worry about repayment and demand higher interest rates to compensate for the increased risk, he said.
"Common sense tells us that the more credit risk you are taking on, the more you are asked to compensate for that risk by way of a risk premium," Maurellet wrote. When the interest rate paid by the government rises, the cost of credit for consumers and companies also increases, reducing consumption and investment, he added.
The Hong Kong government has run surpluses and avoided deficits for many years, Maurellet noted. He said it was important for the city to continue adhering to its constitutional mandate, which he described as "fiscally prudent and economically smart".
"Spending more than you earn and hoping you can continue indefinitely is like defying the law of gravity," Maurellet wrote. "If we keep to our basics, we will continue to succeed."