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Hong Kong: Goose that laid a golden egg
On March 5, Hong Kong's financial authorities proposed their new annual budget, which can be summarized as, "Raise taxes, cut salaries, slash social security and if that is not enough, sell your family assets."
There are as many tax hikes in the proposed budget as there are stars in the sky, and they are disturbing for their novel ingenuity and apparently infinite variety.
Among the most prominent of them are: an increase in the profits tax from 16 percent to 17.5 percent, which will increase the government's income by HK$3.5 billion per year; the reduction of tax exemption figures and readjustment of tax bands in the salaries tax, which will be completed over the next two years and will then increase government income by HK$6.8 billion per year; a 50-percent increase in the airport tax, which will bring in an extra HK$400 million; a 50-percent tax on revenues from soccer betting, soon to be run by the Jockey Club (the combined taxes on horse racing and soccer betting are expected to bring in another HK$1.65 billion this year).
Other tax hikes cover things such as the property tax and the motor vehicle initial registration tax, while newly imposed taxes include the Boundary Facilities Improvement Tax and a tax on foreign domestic helpers.
All these will bring an estimated HK$14 billion into government coffers. But this still leaves the government HK$4 billion short of its revenue target. What other tricks are in store to make up that shortfall remain to be seen.
As far as spending cuts are concerned, civil servants will be the first to get the axe because their salaries and benefits account for 70 percent of the government's spending.
But the Basic Law has prohibited any reduction in civil servants' salaries since Hong Kong's handover to Chinese rule. They have received a pay increase since the handover, but now they must give that up and see their salaries return to 1997 levels. That will reportedly require a 6-percent salary cut.
The government had a dispute with civil servants over pay cuts last year. Fearing that non-cooperation from the 170,000 civil servants would affect Hong Kong's stability, the government relented and adopted a compromise plan which will introduce no pay cut this year, followed by a 3-percent cut on January 1 next year and again the year after. This will save the government HK$7 billion per year.
Disadvantaged groups will be the next to get the axe. Poor families receiving aid under the Comprehensive Social Security Assistance Scheme will see their payouts cut by 11.1 percent. That will save an estimated HK$1.6 billion to HK$3 billion.
An overall review of the government's plan shows that the middle class will bear the brunt of these spending cuts and tax hikes. Hong Kong's Profits Tax (business income tax) rate is very low in the first place, and the industrial and commercial worlds have signalled they could accept a 2-percent increase. But the authorities don't wish to go quite so far. They also compromise with the powerful civil service at every turn.
On the other hand, taking massive chunks from the disadvantaged has been criticized as cold-blooded. Fifty-four percent of Comprehensive Social Security Assistance recipients are elderly people; 15.2 percent are unemployed; 13.4 percent are disabled or in ill health; 12.4 percent are single parents; and 5.4 percent are from low-income families.
But such measures won't surprise us if we understand that Hong Kong is a place ruled by business people, as well as a puppet of the Chinese Communist Party, a party which has no humanity.
At the time of the handover, the British authorities left behind HK$1 trillion in fiscal reserves, the Land Fund and foreign exchange reserves. How come the government now finds itself plucking the feathers of its residents with such abandon not quite six years later?
The reason is very simple: the sluggish economy. But the government's incompetence is also behind the deficit.
Misguided housing policies, for example, have led to a 60 percent slump in property values. The government has announced a halt in land sales in order to save the market, thereby dramatically reducing its income. But government spending has remained constant. This year will see a HK$70 billion plus deficit.
The fiscal reserves have been used up. The government daren't touch the foreign exchange reserves for fear of affecting the Hong Kong dollar's pegged exchange rate. The government is now using the Land Fund to stay afloat, while also trying to increase resources and cut spending.
But this is still not enough. The government will need to sell assets to fill the hole.
But it cannot do this without affecting economic development. The government has not been able to find ways to develop its financial resources be means of economic development, so it resorts to these passive measures, which have angered almost everybody.
Facing criticism from all sides, Financial Secretary Anthony Leung said during a radio interview, "However promiscuous it was, Hong Kong must suffer for that promiscuity." In other words, for whatever good fortune it enjoyed in the past, Hong Kong must now pay with corresponding levels of misfortune.
This cynical remark greatly angered the public. Then it was revealed that Leung had bought a luxury car -- a Lexus -- with HK$180,000 of taxpayers' money. He immediately donated double that amount (also in taxpayers' money) to charity, but he was still criticized harshly by both the media and the people.
Not even Chief Executive Tung Chee-hwa has been able to ease the public anger. Tung himself is having a bad time in the midst of a wave of anti-Tung sentiment.
Paul Lin is a New York-based political commentator.
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