My second principle in managing public finances is that our financial policies should be sustainable. If we increase recurrent public expenditure or reduce recurrent public revenue, we must be able to give reasonable assurances that the changes can sustain themselves.
Recently, there have been calls for the Government to make good use of the fiscal surplus and return wealth to the people. I share this view. This year, with our economy performing well, our tax revenue has increased. Revenues from stamp duty and land premium income, in particular, are far higher than expected. However, we must realise that a substantial surplus will not occur every year. Temporary improvements in our fiscal position, therefore, are not sufficient reasons for significant increases in recurrent expenditure or reductions in tax.
Thus, in studying the feasibility of increasing recurrent expenditure, we must examine carefully the sustainability of each proposed measure. We must avoid measures that impose burdens that the community will find hard to bear in the long run.
Article 107 of the Basic Law stipulates that the Hong Kong Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance and avoid deficits. To ensure fiscal sustainability, I will strive to achieve fiscal balance over the next five years. I may introduce one-off measures which will increase government expenditure in the short term if there are needs in the community and our finances permit.
Past Budgets have been formulated to meet the prevailing needs of the community. For example, Hong
Kong's economy declined substantially after the Asian financial crisis and the SARS outbreak. The Chief Executive and the Financial Secretary at the time, faced with swelling deficits, took unpopular measures to increase revenues and reduce expenditure. Such measures indeed laid the foundations for the subsequent return to sound Government finances a few years later.