Editor's note: This is the second part of the author's article that ran on Thursday.

Should Hong Kong continue the kind of fiscal conservatism practiced by the British colonial administration and accepted in the early years of the post-1997 SAR government? Some may argue that the analysis I made on Thursday is not applicable to Hong Kong in 2014. However, proponents of fiscal conservatism have to answer several questions - more relevant now than in the colonial era:

1. How much of the fiscal reserves would it be reasonable to use during even the worse financial situations? During the colonial era, it was estimated to be 12 months expenditure by the government. At the end of 2013, Hong Kong had accumulated reserves of over HK$ 700 billion - equivalent to almost 3 years of budgetary spending. The fiscal reserves are an addition to the foreign exchange reserve funds supporting the currency board system of Hong Kong dollar. Their purpose is mainly for fiscal management. Given the recent trend of annual surpluses for most years after 1997, unless there is a turnaround in fiscal policy, the accumulated level of fiscal reserves could be even higher.

2. Is Hong Kong now strong enough in terms of its international competitiveness and its responsibilities to its citizens that no further investment is needed in these areas? If not, there should be an obligation on the government to use the fiscal resources to enhance both these areas. Poverty in Hong Kong is still widespread. Recently new government measures were announced to use public money to subsidize a reasonable (but still below average) living standard for more than a million people. Hong Kong is far from being a perfect society. There are large areas of investment shortfalls compared with societies with similar - or even lower - levels of economic development. The recent emphasis on innovation, as a major factor for social development, does not reduce the importance of investing in infrastructure - especially in encouraging social mobility. It requires more intense investment in social capital - all of which will involve considerable investment by future generations.

3. What should be the proper balance between savings, investment and consumption? Investment is not for wasteful consumption. Investment and consumption will constitute demand that will boost economic development and growth. Recipients of welfare are also consumers and producers in society. Consumers create local demand for production and producers work to turn demand into economic growth and incomes. As they constitute a large proportion of the population, their role as consumers and producers is essential to society's well being. Among them are often many talented people, who, with appropriate financial support and education, could be leaders in many fields in future. They would benefit not just Hong Kong but also the entire country and the rest of the world. If financial hardship is not addressed, inter-generational poverty and social immobility will worsen. These have been proved to be a major source of social problems, even leading to criminal behavior (like in some of ghettos in the US). Savings do not mean storing money away for the future. Savings also represent opportunity costs; the more accumulated savings then the more opportunities are lost. Fiscal conservatism in Hong Kong is similar to being a miser; but there are two great differences. Such an attitude will hurt society and not just people today - but the next generation.

4. Should Hong Kong cut public spending and keep more savings to prepare for the growing aging society? A growing aging population will mean more spending on healthcare and fewer workers to produce and create wealth. Simple arithmetic points to shrinking revenues and increases in public expenditure leading to possible financial deficits. However, investment could be made in technology and even in changes in lifestyles to reduce living costs. Low carbon living is desirable - with less expenditure and less waste of energy and materials. Medical and healthcare should not be so expensive even for new drugs if less money is paid to profit large corporations under the pretext of intellectual property rights. With less pollution and more walking and more productive work (not long hours of servitude), old people can enjoy a healthier life with less need for medical care. With a proper regulation of working life to reduce unwanted stress, people can work longer - either full or part-time. Their experience and skills can benefit society and boost productivity and innovation. Using the growing aging population as an excuse to cut investments is almost social suicide.

5. Hong Kong suffered decades of colonial rule. The handover in 1997 has unfortunately preserved many colonial attitudes which are still hurting the population. Now, should it be the right time to question fiscal conservatism and other ideologies from the colonial era in the best interests of Hong Kong people?

The author is director of the Public Policy Research Institute and head of the China Business Center, Hong Kong Polytechnic University.

(HK Edition 02/14/2014 page9)