Hong Kong's Financial Secretary John Tsang on Wednesday forecast a HK$12 billion (US$1.54 billion) budget surplus, but warned of a structural deficit in coming years should expenditures on education, social welfare and healthcare services continue to rise.
The projected surplus for the fiscal 2013-2014, which ends March 31, was a turnaround from last year's forecast deficit of HK$4.9 billion, thanks to higher revenue from salaries tax and land sale.
"By March 31, 2014, fiscal reserves are expected to reach HK$745.9 billion," Tsang said in his annual budget speech in the legislature.
He also forecast a surplus of HK$9.1 billion for the 2014-2015 fiscal year, with HK$755 billion of fiscal reserves, equivalent to 22 years of government spending.
But since public expenditure is expected to rise with an aging population and a string of new social welfare measures announced last month targeting the working poor, ethnic minorities and schoolchildren, Tsang said mid-term projections are dim.
"If services were to be enhanced following the historical trends at about 3 percent per annum for the three areas (education, welfare and healthcare, on top of adjustments for demographic and price factors, government expenditure would grow at an average growth rate of 7.5 percent per annum. In that case, a structural deficit would surface in seven years' time," he said.
Those three areas comprise about 60 percent of total expenditure.
Most relief measures rolled out in the past have been retained, including salaries and profit tax reductions of 75 percent with a HK$10,000 ceiling, waiving property rates for the first two quarters of the next fiscal year with a HK$3,000 ceiling, rent subsidies for public housing tenants and extra allowances for welfare recipients, costing a total of HK$20 billion.
"We have seen examples of governments spending beyond their means in recent years in Europe and America. This not only undermines the stability of a society but also gives rise to far-reaching consequences for the future. I believe that the present generation recognizes the importance of fiscal prudence, that is to avoid making today's spending a burden for the next generation," Tsang said.
Economic growth in 2014 was forecast at 3-4 percent, lower than the average growth rate of 4.5 percent over the past decade. Inflation pressure will be eased to an average of 4.6 percent on the back of steady global food prices and slower rise in local housing and shop rentals.