The last budget by Hong Kong’s Financial Secretary John Tsang has not brought any surprises to the community. The budget speech basically followed the tradition of non-intervention without long-term commitment in any policy area.

There certainly were concessions and fiscal incentives provided to different sectors of the economy and society outlined in the budget speech, mostly one-off measures. The government did not review any one of the existing policy areas. Measures introduced therefore did not touch the basic principles governing these policy areas. What measures were announced were mostly supplemental in nature, often taking the form of separate funds, leaving the policy regime basically unchanged.

One example is the injection of money into the Samaritan Fund, which provides subsidized assistance to patients in public hospitals. The government maintains its refusal to expand the overall list of medications for all patients. The injection of money into the fund outlined in the budget speech continues to require a means test, albeit more relaxed than before. The procedure still incurs heavy administrative costs to patients and the government.

It is true that the proposed budget raised tax allowances in many categories for the middle class, for the first time since 1998/99. As in the past years the levels of tax allowances changed several times, reducing more than increasing. There is no guarantee that the next administration will continue to do so. The government did not explain the rationale behind any of its increases or decreases in tax allowances. Mr Tsang explained only that he has responded to the wishes of the middle class “for the government to understand their hardship and to ease their tax burden”. But why? And why has he responded to the middle class rather than to other sectors of the community? It seems just like another one-off measure.

The rationale behind the government’s adopting them appears a passive, though selective, response to demands from different sectors, without any long term, more structured consideration. “Passive” implies that the government lacks any well thought out fiscal policy embedded within a broader understanding of the development of the Hong Kong society and economy. It is “selective” because the government has the discretion to decide upon the allocation of resources and will yield to those who have greater access to key government officials, or more influence over them. Thus it becomes a game of differential access and influence, without a solid basis of economic, social and political principles or an institutionalized consultation process.

This is a strange feature of Hong Kong budget/policy politics. The Chief Executive is under no obligation to honor his policy platform put forth during his electoral campaign. Neither is he obliged to tell the society his policy preferences and options before he is elected. He and the financial secretary under him can do whatever they wish to do under whatever expedient, though not necessarily persuasive excuses.

The financial secretary said in the speech that “we should improve our market infrastructure, seek to enhance the market connectivity of the mainland and Hong Kong and increase our market capacity”. These are beautiful words, but we are given no explanation as to how these worthy objectives would be achieved. One test of the market mechanism in Hong Kong is the influence of oligopoly in the local economy. The government has said nothing and proved nothing on this concern, and the competition law is yet to be enacted. Nonetheless, a casual impression would indicate that many sectors and specific industries in Hong Kong have been subjected to oligopolistic controls. Real estate, banking, food importation, supermarkets, and many public utilities, reveal evidence of this heavy handed control.

As for market connectivity, institutional barriers between the two systems under one country have not been eliminated by the CEPA. Our infrastructure, in particular our transportation infrastructure to connect with the mainland, remains inadequate and even backward. The high-speed railway, which will be the sole mass transit link with the mainland, is in the earliest stages of construction and will not be operational until 2015. By that time, the dense network of high-speed rail service will already be well established in the Pearl River Delta region.

The financial secretary spent paragraphs of his speech talking about the four pillar industries and six emergent industries. A closer look at the record suggests that, with the exception for the financial industry, the government actually has extended minimal effort to promote these industries. In the first place, the government is still shy about having an industrial policy. There is no well-focused strategy. The 10 sectors cited in the government’s development plan represent the majority of the industries/services in the local economy. By emphasizing all, it means there is no focus, nor is there a strategy. Even for those industries the government has no concrete strategies like those outlined or roadmapped in the industrial policies of other governments.

Many local governments on the mainland have clear industrial development strategies. It is no wonder that the budget speech offered up only piecemeal and unrelated measures, some of those marginal and trivial in their contribution to actual industrial development. Even for the financial industry, the government refuses to acknowledge the narrowness of the local industry. Few effective measures were introduced to broaden the local market beyond shares and warrants.

As innovation and knowledge have become the foundation of most industries and services in the world, inputs in the form of R&D spending should be a good indicator of the innovativeness and knowledge intensity of the local economy and society. The budget speech does not provide a ratio of local R&D spending to GDP. In the past, Hong Kong’s research and development spending has been much less than 1 percent of GDP. The mainland as a whole including urban and the rural sectors had achieved 1.3 percent by 2005.

Unlike its counterparts in local governments on the mainland, the Hong Kong government has set no target for raising the ratio. Without a massive increase in R&D input to improve local innovativeness and knowledge intensity, it would be irrelevant for the financial secretary to talk about promoting the so called innovation and technology industry.

The author is head of China Business Centre, Hong Kong Polytechnic University.