Last week, I pointed to the need for a strategy to restore fiscal sustainability. This week, I shall discuss what I think might work.

The latest figures about our fiscal deficit and our fiscal reserve were released last week. The deficit in the first quarter of this fiscal year was HK$120 billion ($15.42 billion), while the fiscal reserve fell to HK$614.6 billion. The Hong Kong Special Administrative Region government rightly pointed out that the bulk of the city’s revenues is collected toward the latter part of the fiscal year. The spokesperson for the government also pointed out that in the first quarter, there were no bond issues, so the expected revenue from bond issuances has not yet been counted. Still, the HK$614.6 billion fiscal reserve is the lowest since 2012.

The government is obviously aware of the importance of addressing the fiscal sustainability issue. Secretary for Development Bernadette Linn Hon-ho recently indicated that the government is now exploring a new mode of “development of local districts” that will potentially “alleviate the financial burden of the government in the initial stage, facilitate a more coordinated design for the development of local districts, and expedite the provision of public facilities by leveraging market forces”, according to the government’s news release.

This new mode would place the burden of some infrastructural development on the developer, formerly borne by the government. Linn says this mode is quite common in Shenzhen and Shanghai. The main benefit is that the government need not wait until all the infrastructural works such as site formation works, roads and communal facilities have been completed before selling the land in question. Although the cost of the infrastructural works will be reflected in lower land-sale proceeds, the government would pocket the revenues earlier, which would have an immediate favorable effect on the government’s fiscal position.

Unfortunately, this favorable result is subject to much uncertainty. Particularly at this time, when business confidence is weak, it is likely that developers will discount their prospective income streams more and add an uncertainty cost on infra structure development. Since the benefits of roads and communal facilities have spillover effects that may benefit developments in the neighborhood, and since roads and communal facilities cannot really be properly planned when developers are separately in charge of their own projects without more holistic planning, the advantage of booking in land sales earlier may not be offset by the reduction in the bids that developers would offer.

Although the two cases are quite different, the failure to attract a satisfactory bid on the first project under the Private Subsidised Sale Flat Pilot Scheme does reveal the possibility that imposing more burdens on the developer may excessively undermine the attractiveness of a project. In the end, instead of expediting the development process, we might further delay the planned development. Although the “new mode” has been tried in Shanghai and Shenzhen, successful cases had been recorded when developers were very optimistic because demand was very strong. Times are now different.

Now that the government is inviting suggestions for Chief Executive John Lee Ka-chiu’s third Policy Address, I would make the following recommendations.

First, I think it is important to restore the incentive of public housing tenants and the Home Ownership Scheme (HOS) owners to seek better housing in the private market. Public rental housing should be reserved for those who cannot afford to buy or rent a flat in the superior private-housing market. Public rental housing (PRH) should not be built on prime sites that seek above-median land price per square foot of usable area. HOS flats can be located on somewhat more expensive land (say, the 50 to 60 percent percentile).

Second, in principle, HOS flats should be of noticeably higher quality than PRH flats. I would propose that all Hong Kong permanent residents should be eligible for HOS flats, with the proviso that owners must not hold other properties and must live in their own flats. I recommend that HOS flats should be no bigger than 400 square feet (37.16 square meters) for a four-member family, and that they should be priced at eight times the median annual income of economically active households.

Third, I would relax the Capital Investment Entrant Scheme so that home purchases can be counted as capital investment. There should be no worry about triggering speculation and home price increases. In any case, we need to restore people’s confidence in homes as a store of value.

Fourth, for healthcare financing I would introduce an “Excessive Burden Protection” program, raising healthcare charges across the board for direct cost recovery but cap ping annual eligible healthcare expenses (the SAR government will pay for expenses beyond the cap every year), so Hong Kong people will be sure that healthcare costs are affordable.

Fifth, change the formula for charging elderly public-transit trips to HK$2 or 20 percent of the normal cost, whichever is higher.

Sixth, maintain the 17 percent top marginal tax rate for the salary tax, but eliminate the standard tax rate. Hong Kong’s high-income earners do not need the 15 percent cap protection. We still have a simple and low tax regime.

The spirit of the proposed changes is to both foster self-reliance and reward self-reliance. Only when the “lie flat” culture is replaced by the self-reliance culture can Hong Kong’s resilience bounce back. Only then can we regain fiscal sustainability.

The author is an adjunct research professor at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute and the Economics Department, Lingnan University.

The views do not necessarily reflect those of China Daily.