Monday, June 28, 2010

Deficit Reduction Über Alles

The G20 meeting in Toronto concluded with the vast majority of participants choosing deficit reduction over more stimulus spending. David Cameron argued that downgrading Britain’s sovereign debt would have worse consequences than an economic slowdown. In a major move before the last general election in Germany on September 27, 2009, its parliament adopted a balanced budget constitution amendment that makes it illegal to run a federal deficit greater than 0.35% of GDP by 2016 and any deficit at all in the several German states by 2020.

Britain transferred sovereignty over Hong Kong to China on July 1, 1997, and Portugal over Macao on December 20, 1999. Each was designated a Special Administrative Region of China and given a Basic Law, a mini-constitution, enacted by China’s National People’s Congress.

You can read the full text of the basic laws of the HKSAR and the Macau SAR. They are virtually identical, save a few articles recognizing the differences between British and Portuguese colonial rule and institutions. Chapter V, “Economy,” in both provides certain guarantees of economic freedom but also stipulates the requirements of public finance. Article 105 in Macau and article 107 in Hong Kong identically state that:

“The Hong Kong [Macao] 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, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product.”
Hong Kong and Macau have recorded sustained high growth during their post-colonial years and have accummulated substantial budget surpluses.

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