Business Opinion Politics & Protest

Hong Kong deserves a system of public finance founded on 21st century values

The Hong Kong government’s 2018 budget address was generally positively received with Paul Chan – the financial secretary – glowing in an almost embarrassment of riches.

Last year the economy grew by 3.7 per cent, while inflation fell to 1.7 per cent. Government revenues continue to grow, and a record surplus of HK$138 billion was recorded for the last financial year.

Paul Chan

Paul Chan. Photo: GovHK.

Hong Kong now has HK$1.1 trillion in reserves, and another HK$3.6 trillion in the Exchange Fund. For any city in the world — indeed for most sovereign states — these would be outstanding figures.

And yet for a city that prides itself on a mix of financial acumen and professional civil service, the best that Financial Secretary Paul Chan and his team of assistants, advisors and under-secretaries could muster for the coming year’s budget has, in short, been yet another round of small change policies. How very predictable this has all become.

Even in the two areas Chan identified as critical to the future economy, in start-up tech businesses and continuing education, public investment will in effect amount to a one-off HK$2,000 grant for poor students and yet another round of investment in the white elephants that are our science and technology parks.

For those impressed by the incubation programmes offered by Cyberport, it is worth considering this: Cyberport was built, promoted and supposedly a “technology hub” at least five years before tech companies began to cluster around London’s Silicon Roundabout or Berlin’s Silicon Allee. Even nationally, Beijing and Shanghai have long overtaken Hong Kong in this regard, and have successfully established genuine centres of technological excellence with a global reputation.

Chan can at least be credited with ignoring the embarrassingly self-serving and unsophisticated calls among many of our greying elite for a cash rebate.

What this administration, like others before it, fails to understand is that government finance, and the system of taxation on which it is founded, is not purely an economic issue. It is also social and philosophical.

skyline-victoria-harbour-icc-1

Photo: GovHK.

Late last year I was asked to provide feedback on a draft positioning paper on tax reform prepared by Stefano Mariani, a leading Hong Kong-based tax lawyer. Mariani is no ordinary practising lawyer, but understands the law with its philosophical background.

The point on which we agree is that the success of a system of taxation is not just to be measured in numbers. Beyond the level of taxation and how government finances are spent, we must also ask whether the system of taxation itself is representative of the society we have become and, more importantly, the type of society we wish to be.

It is also clear that around the world change is afoot. From the global public outcry following the release of the Panama and Paradise Papers to the resurgence and relative political success of old-school Marxists like Bernie Sanders and Jeremy Corbyn, if the liberal world order is ending, liberal humanist values are not.

This is especially true among the young, an increasing number of whom are educated, and for whom deference to the more mercenary interests of the past have been replaced by a more philosophical notion of “value”.

As Steven Pinker has seemingly made a career propounding, the developed world is a far more humane place than we give it credit for. The young people of today, he writes in his new book, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress, are the most “enlightened” in history; the most considerate generation if not necessary the most considered.

Money may still be important, but so too is how it is earned. For them, taxation is increasingly understood as being as much a moral as economic issue; and development defined less by the size of an economy than by the values on which this understanding is based.

In Hong Kong, where a democratic deficit is coupled with rising Chinese nationalism, such social and value-based issues are also political. However, this connection is rarely considered, much to the detriment of society as a whole.

hong kong basic law one country

Photo: Kwok Man Yu, via Discoverthebasiclaw.gov.hk.

As Mariani wrote recently in the South China Morning Post:[…] Taxation must become a political issue. Both civil society and Legco members interested in a sustainable future for Hong Kong’s economy have a duty to press the government to explain clearly how it envisages tackling the structural imbalances in Hong Kong’s tax laws, and ensure that these begin to reflect the funding needs of the city not as it was, but as we wish it to be.

Hong Kong may now be a Chinese city, but we are also a city founded on international connections. These connections are not only economic.

Hong Kong values may once have centred around the pragmatism and flexibility of a refugee society. But values, like people and circumstances, change — and as Hong Kong people began to take root and society prospered, so too have our values matured.

More than in any other Chinese city, the people of Hong Kong, having benefited from the relative freedom of a liberal government, and have now what E.M. Forster once described as “that grown-up look in their eyes.”

Hong Kong is also now an advanced and developed economy, with much of its inherent potential realised. Our society suffers increasingly from first-world problems, including wage stagnation, rising job-insecurity and limited career prospects. Social and economic stratification have set in particularly hard in this city, due in part to our colonial history, inept leadership and the unusual situation of our post-colonial political castration.

All of these factors disproportionately affect the young, who share, as the protests of 2014 demonstrated, much of the same idealism and many of the same core values of their generation elsewhere.

hong kong democracy occupy universal suffrage umbrella movement

File photo: In-Media.

Regardless of one’s political persuasion, any reasonable visitor to the Occupy Central site in Admiralty would have noted, as the world’s press did, its peaceful ideological foundations. Beside the knights of Manga and Marvel were the images and quotes of Gandhi and Martin Luther King.

In fact, the protest organisers admitted frankly that they drew inspiration from the precedent and ideals of the American civil rights movement — a peculiar choice and one very different to democrats of a generation before, who looked more naturally towards their own history and the national pro-democracy student movements of the late 1980s.

The actions of our youthful idealists may be judged, with hindsight, to have been counter-productive. It may be considered unwise to have deliberately shaken the hornet’s nest by belittling oaths and failing to respect protocols — especially when holding the moral high ground and with the argument in your favour. And yet it has been their politics that has so completely overshadowed the more moderate politics of reason and respect that had been our inheritance.

There may be questions over actions, but surely not over ideals. Even within the establishment, both in the party and among our own elites, there is at least public recognition that ideals of justice, fairness and of representation must be central to their own political message.

Plato, the least sentimental of classical minds, wrote:

When there is an income tax, the just man will pay more and the unjust less on the same amount of income.

For there exists an intrinsic connection between systems of power and taxation; between taxation and what we by our nature understand as justice. This is regardless of law, and is central to the philosophical underpinning of civil disobedience. It is why those who legally evade paying their fair dues, and those who assist them, may not be criminals but may still be cheats.

It is interesting to consider what Plato, or indeed any reasonable person, would make of a system that allows loopholes and grey areas through which the more fortunate may “reduce” paying tax on their own good fortune.

That there is something deeply unfair about Hong Kong’s tax system is obvious to most. So it might be said that our system of public finances is out of balance in both ideal and in need with the society from which it draws. Hong Kong is deeply divided on many levels, and these divisions, whether social, political or economic, cannot be wished away.

Mariani suggests three amendments that are simple and yet represent an important shift in emphasis. What he proposes is not to increase taxation, but to increase the tax base in line with existing levels of taxation, and targeting potentially taxable assets that would go some way to alleviating genuine social problems faced by many in our city.

People drew symbols of the Occupy protest.

Photo: Larry Au.

His proposals are:

Firstly, a capital-gains tax should be introduced on the disposal of residential property which is not the principal residence of the vendor.

Second, a flat annual tax should be levied on the holding of vacant residential property, to discourage speculation and to cool down the rental market.

Third, offshore dividends that are remitted or spent in Hong Kong should be taxed, thereby eliminating the currently absurd situation whereby the salary of a resident employee is chargeable to salaries tax, but a dividend received by a resident investor from an offshore company is not.

A proposition paper outlining the arguments for reforming the tax system in line with the new social conditions and values of Hong Kong today, and suggesting these three measures, was put to Financial Secretary Paul Chan last month by Civic Party Legislator Dennis Kwok.

The government response was non-committal.

Let us hope that the case for tax reform is taken up by more of our legislators, of all parties and political positions, including those representing our national government. If the differing tax regimes of Hong Kong and the Mainland are to be streamlined, let us now begin discussing how this might best be achieved.

As measures are taken nationally to restore public confidence in a corrupt party, let us symbolically do the same by ending a tax system that is imbalanced and that contributes significantly to the breakdown in social mobility and hope within our city.


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Hong Kong deserves a system of public finance founded on 21st century values