Ominous warnings – Lion Rock Institute on the 2015-16 Budget

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In a contributed column to Harbour Times, Bill Stacey – Chairman of Hong Kong’s leading free market think tank, the Lion Rock Institute – shares his thoughts on John Tsang’s 2015-2016 Budget.


 

If an election is “an advanced auction on stolen goods”, then a budget is just a division of the spoils. If that is the case then the decision to return resources to those it is taken from through tax rebates and fee waivers should be lauded. This stands in contrast with the tax increases in Singapore, but it is less than might have been done if tax rates were cut more permanently.

John Tsang makes a genuine pitch for the basic values of Hong Kong, which he suggests are diversity, openness, peace and freedom. His language recognises diverse views and pleas for pragmatic responses to real problems. Does the budget live up to the promise?

The big picture is that government spending will rise 11%, a great deal more than the economy, but remain at 20.4% of GDP, where it is expected to stabilise. Unfortunately, many of the areas where reform of government are needed are outside the purview of the budget. Burdensome regulations, competition from government with private businesses and the need to simplify and modernise the government have less focus than they should.

Big on small businesses

The budget has a strong focus on facilitating small business. Who could object to reestablishing alfresco dining and “food trucks”? Which hopefully, will be a modern version of the traditional Hong Kong dai pai dong and hawker. The sentiment is laudable, but marred by subsidies for elite fashion, film and cultural industries. These are highly competitive global industries, where the best product wins. Whilst politicians relish attending the events of these industries, governments have almost never been responsible for sustained success that thrives not on subsidies, but on our vibrant free and open culture.

The pitch to reopen the debate about a goods and services tax makes a mockery of the tributes to small businesses and social enterprise in Hong Kong. A GST would end the status of Hong Kong as a tax free port and turn every business into a tax collector. Whilst potentially enriching accountants and lawyers, it would impose on many small businesses and sole traders a crippling compliance burden. There are better options for revenue stability than a GST.

In this thirst for revenue raising Hong Kong is not alone. The budget yields to pressures to adopt new OECD standards for tax data collection and exchange. It might be unfashionable to point this out, but these requirements (such as FATCA legislation in the US) cross a line from enforcement of law, to breach and abuse of personal privacy that has a real impact on the lives of honest taxpayers.

A choice to be made

Although ominous, the budget and outlook remain informed by the prudent insistence on living within our means. Tsang forcefully advocates plans for an aging population on retirement income and health care that are not “pay as you go”, but in some way funded. However, the very advocacy suggests his concern that the outcome of public consultations might be pension schemes that unaffordably fall into the traps of European and other developed countries.

This is a budget that makes basic choices clear. Hong Kong can remain a free city with small and prudent government with a low and transparent tax regime. If it chooses the extensive universal pension schemes of other countries, it is destined to introduce consumption taxes and move away from the unique advantages that have allowed our people to thrive.