Time to get down to brass tax issues

Philip Bowring

Budgets should be occasions for thinking beyond tinkering with taxes and doling out 'fruit money' to the poor and mega projects to the construction industry, and considering the rationale and efficacy of specific taxes. Can the financial secretary, when he delivers his address, get beyond bald data and puffery to discuss tax issues?

It has been obvious for years that Hong Kong's tax system is horribly unbalanced, over-reliant on highly volatile land sales and stamp duties on share and property transactions, which give the government a vested interest in socially damaging asset price inflation. The government once wanted to push a goods and services tax but backed off in the face of widespread opposition. As a result, its recurrent revenue remains highly dependent on salaries tax, which falls largely on the middle-income sector, and even more on profits tax, much of which is actually on profits generated on the mainland but passed through Hong Kong to take advantage of the lower local tax rates.

Even salaries tax has been consistently eroded and there seems scant hope of it becoming more important again. But if a shift to taxes on consumption is preferred, there is one simple and easy way to collect tax that would raise large amounts of stable revenue and have a major social benefit - a tax on power and gas usage. Tobacco, gambling and spirits are heavily taxed in the name of taxing sin. Why not a 25 per cent tax on power sales, which is the major polluter and contributor to public health problems? It would fall most heavily not on households but on commercial enterprises for whom wasteful energy use has become the norm because it costs so little relative to rents. It would fall least on those with the smallest living space.

Road pricing should be another way of raising revenue while addressing pollution issues. If that is too sensitive for a weak-willed government, how about increases in fuel duties and imposing taxes on the tunnel system - once the existing absurd pricing structure has been reformed?

Undoubtedly, the cry would be: we don't need more taxes given the size of the surplus. That's partly true. But there are lots of minor imposts that raise little revenue but are irritants. Take business registration. Why should it cost more than its cost of administration? There is also a strong case for cutting stamp duties. Those on share transactions now put Hong Kong at a disadvantage compared with other international locations. Those on property transactions are grossly unfair because they target individual purchasers but not those who use corporate ownership structures.

Taxes must focus on simplicity, fairness and, in a few cases, social goals. New tax revenue is also needed to persuade officials that they can manage with less from land- related revenues - land sales, land rents and rates. Without that they may never learn how much damage to the economy is done by high land prices.

As for the windfall gains of the past couple of years, which have added another HK$100 billion or so to reserves now in excess of HK$1 trillion, there are two simple answers that would address current and future problems. Government policies are actually in breach of the Basic Law, which calls for 'a fiscal balance' - not ever-increasing surpluses administered by unaccountable bureaucrats.

The first should be to inject HK$500 billion - most of the Monetary Authority's accumulated surplus - into MPF accounts weighted towards those who have worked longest. That would go a long way to easing conditions for an ageing population whose savings have been eroded by inflation.

The second is to regard reducing pollution as an investment both in public health and in attracting high-value-added business. If the budget focused on improving the quality of life for all instead of building concrete monuments to the stupidity of the leadership, we would all be better off. ends