Mo’ Money

Tax Breaks and Populist Governance in Hong Kong

Tax 稅, by hochitThe greatest delights are sometimes more food for thought that you might imagine. Next year I’ll pay almost no income tax, for the second year in a row. I don’t dodge tax – I’ve just been given a break. Thank you, Hong Kong. But multiply my windfall a few thousand times and what does it mean?

First, allow me to set the scene. On Wednesday last week, Hong Kong’s Financial Secretary delivered his first budget. Not such an interesting event you might think, but this version had already been subjected to a long stretch of public debate. John Tsang had a sizable budget surplus of HK$115 billion to fling around, and everyone was looking for a piece of the action.

What finally stuck when the details hit the wall was an extension of last year’s offering – 75% reductions of income, profit and property taxation subject to HK$25,000 ceilings, and various small, once-off gestures, including a few welfare give-backs.

The Standard newspaper, in its slightly scatterbrain style, pronounced the Financial Secretary “Santa Tsang”.

Now, I’m not the wealthiest blogger in Hong Kong, and have less to gain than some, but – silly labels aside – the situation made me jitterish with joy. A 75% reduction of my income tax bill will probably mean I pay less than around US$300 for the year. For the year. With what’s left to me I can support a family of five in one of Hong Kong’s tidier suburbs.

Although they scare me, the words ‘middle class’ are suddenly swimming across my vision.

But I shouldn’t let the situation get the better of me. Over at Asia Sentinel, Philip Bowring reiterates a criticism he published in the South China Morning Post the day after the big announcement. For a budget that purports to leave wealth with the people it seems to have left more with the already wealthy.

Million Dollar Photo, by wZa HK‘Seems’, is the operative word here. Bowring mentions that the 400,000 people in the HK$300,000 to HK$600,000 tax bracket will gain the most from the cuts. He doesn’t use the term ‘rich’, but the implication is there. He also doesn’t mention that the cuts extend to profits tax and property tax, and that the once-off freeze on government rates, which he claims will mainly benefit “the higher income and commercial sectors”, will also cover every Hong Kong home owner, regardless of their net worth.

So the accursed 400,000 are only one part of the equation, and a shifting part at that. Hong Kong has very high tax-free thresholds. I might be relatively ‘rich’ by some estimations, but like many married people with non-working spouses and dependent kids, three-quarters of my income is already tax free. If my wife and I had another kid next year I would pay no tax at all, so in Bowring’s blinkered scenario I would be instantly poor.

Yet the whole question of who pays tax in Hong Kong does say something about how constituencies are formed in places that lack democracy. Sure, Hong Kong has a partially elected Legislative Council, but it serves little political purpose in a system led by an appointed executive (sham mainland ‘elections’ for the Chief Executive aside). Writing in the South China Morning Post last weekend, Albert Cheng – one of the many pro-government Legislative Council Members – gushed that the budget was a case of “Hong Kong Inc”, with management paying a dividend back to the shareholders.

So governance in Hong Kong appears analogous to the corporate variety, but it pays to remember that shareholders who are pleased with a yearly dividend still might not be happy with the senior management. EastSouthNorthWest collated the main public opinion polls on the day of the budget speech, with the Hong Kong Research Association noting a 64% level of satisfaction with the budget but only a 44% level of satisfaction with the government’s overall performance. The Chinese University of Hong Kong poll put support for the government at only 36.1%.

John Tsang, by Bill Chan 84I wouldn’t usually mention figures that could well reflect a knee-jerk reaction to media reports, but it seems appropriate here. John Tsang did the rounds of community groups, and even managed a little door knocking, to find out how people wanted him to spend the budget surplus in the four month lead up to his announcement.

You could think of these little assignations as mini shareholder meetings, but they’re really just traces of populist governance.

Allow me to be precise here: I don’t mean populist politics, which usually involves appeals to common prejudice on the campaign trail, or populist government, like the house of straw Hugo Chávez has been building in Venezuela, but populist governance: an attempt to define the parameters of government action by ‘consulting’ people and groups who might be representative of the general public. And that’s a very big ‘might’.

Chris Yeung has suggested that the budget give-aways were a more-than-convenient boost for John Tsang’s tilt at the Chief Executive’s job in 2012. Perhaps, but that would merely be evidence of populist politics. Leaving aside the meagre welfare gains, the more income-negative changes to tax rates are not the first in recent years. Salaries tax rates alone have changed every year since 2002, and it pays to realise that tax isn’t the revenue measure here that it is in other localities.

Land sales rake in around a third of government revenue in Hong Kong, and there’s the not so little matter of money made by the Exchange Fund from currency speculation. Philip Bowring surely got it right when he asked why the HK$109 billion surplus accumulated by the Hong Kong Monetary Authority in defending the currency peg with the US dollar was not only ruled out of public discussion, but was not even included on the government’s books.

Tax breaks are a pittance compared to this hidden cash, but they, the other small give-aways and the ‘consultation’ process have guaranteed the government relief from further scrutiny of its financial affairs.

Just over a week after John Tsang brought down his first budget it’s making very little news. In a week’s time it will be largely forgotten.

No Evil, by timsamoff

A splash of cash buys a lot of silence in a city of almost 7 million people. Doesn’t anybody want to talk about this anymore, or is old news the only type of good news?

It’s a puzzling world.

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