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Written by: Commentary Editing Room
2020-12-22 07:00
Last update date: 2020-12-22 07:00
The government launched a public consultation on the "Budget" announced in late February on Sunday (20th).
Financial Secretary Chen Maobo said that although the authorities will maintain a countercyclical fiscal policy during the epidemic, fiscal reserves have now reached a record low after the return, so it is necessary to consider adjusting tax rates or imposing new taxes.
Tax reforms have been discussed for many years. Will the Hong Kong Government once again discuss this, or will it take this crisis into action and use it to reform the gap between rich and poor?
The new "Budget" will be released in February next year. However, as Hong Kong's economy is still heavily covered by the epidemic, the government's fiscal revenue and expenditure will become particularly important when the economy is down.
Hong Kong has been hit by social movements and the epidemic since last year. After the authorities have introduced various relief measures, the total government expenditure in the 2020-21 budget has reached 731.1 billion yuan, which is not only a significant increase of about 20% over the previous financial year, but also financial support. Reserves have dropped sharply from 28 months of government expenditure to about 13 months.
Tax structure is about social equity
The remission of the epidemic is a necessary condition for the economy to return to normal, but even so, the Hong Kong economy still has its structural problems to be solved.
The public financial weaknesses exposed by the epidemic crisis must be addressed squarely by the authorities.
As Hong Kong is an open economy with a narrow tax base, government revenue is easily affected by fluctuations in the external economy.
Whenever the economy is hit hard, the government's revenue from taxation and land sales will be greatly reduced.
Even though the epidemic in Hong Kong is not as severe as Western Europe, the forecast for Hong Kong's economy for the whole year is still 6.1%.
Therefore, the government not only specified the need to increase revenue and reduce expenditure, and use reserves prudently, but also mentioned that "consider opening up new sources of income or adjusting tax rates", which has its own rationale.
According to government information, profits tax is the government’s largest source of operating income, followed by salaries tax and stamp duty, while land value income is the main source of non-operating income. The four together account for approximately 67% of the total government revenue in 2020-21. .
However, the Asian financial crisis, the bursting of the dot-com bubble, SARS, the financial tsunami, and even this epidemic can be seen. Whenever Hong Kong's GDP falls sharply due to the external environment, the rate of decline in total government revenue is often worse than that.
Even if Hong Kong's economy will gradually return to normal next year, the trend of aging society and declining birthrate will still constitute a heavy burden on public finances in the long run, and tax reform should be introduced as soon as possible.
The current economic outlook is unclear. It is understandable that the business community and the public resist tax reform, but the reform can still be implemented on a gradual basis.
For example, New Democrat Party Chairman Ye Liu Shuyi believes that in addition to debt financing, the government can also increase the gaming tax rate; and Zhuang Tailiang, associate professor of the Department of Economics at CUHK, believes that the stock stamp tax can be started because most taxes are not paid by Hong Kong people, even if The fine-tuning has already made considerable income.
Although it is bound to be difficult to reach a consensus on new taxes, it has less impact and is a viable option.
Regardless of the direction of the reform, it should be based on the principle of progressive tax. Only this can prevent the contradictions in the social structure from continuing to ferment.
Just like Disney’s successor, Abigail Disney, and more than 80 billionaires who issued a joint letter in July this year, the problems caused and revealed by COVID19 can never be solved through charity, and support the introduction of a "regular tax."
Although this position seems to be against their class interests, their starting point is not only to have pity and sympathy for the poor, but also to fully understand the relationship between basic life at the grassroots level and social stability.
But even if members of the establishment also agree with this urgent need, the Liberal Party leader Zhong Guobin spoke out against it, stating that it is not feasible to impose a new tax. Obviously, he still has not got rid of the narrow class interests thinking and ignores the needs of long-term social development.
There is no need for inequality. Many of the many social problems in Hong Kong are caused by the conservative public financial management methods.
Social demand: improve poverty inequality
In fact, since the outbreak of the new crown epidemic, Hong Kong society has been calling for the reform of public financial management.
Take the Employment Guarantee Program as an example. It spends tens of billions of dollars to subsidize employers, but in fact, the number of employees who can really benefit is limited, and a lot of public money will eventually be self-fertilizing for enterprises.
Another example is the government's refusal to formulate unemployment benefits to directly help citizens tide over difficulties.
These demands reflect the inadequacy of drip economics and the imperfection of Hong Kong's social safety net.
Now that the Financial Secretary is launching a public consultation, if he is willing to listen to the demands of the society, he should understand that he urgently needs financial reforms to support the lower class to improve their lives and narrow the gap between the rich and the poor.
In the United States, where the free market is supreme, although its deficit and national debt are huge, far exceeding the level of Hong Kong, Biden's economic designate still advocates increasing spending, raising the minimum wage through tax increases, and promoting industrial policies.
Will the Hong Kong government still stick to the rules and ignore the plight of the grassroots and the disparity between the rich and the poor?
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