Taxing the rich, easing burden of the poor is what we already do
IT IS A WELL-WORN vote-winning mantra - give the deserving sandwich class some tax breaks and let the rich have none as they can afford to pay anyway.
If this is indeed official government thinking, I find it surprising that the person who broached the idea in our front-page story yesterday - Tax relief on the way for people earning less than $1 million - identified himself only as 'a source close to the government'. Here is the sort of trial balloon on which politicians normally scramble to plaster their names.
But I suppose that until we have casino boss Stanley Ho Hung-sun put his name to it, we can never be sure that it is really a firm proposal. Don't ask me why he is so often the first person to get the drop on big news, but he is and invariably he has the straight goods when he then spills it.
Let us get the minor point out of the way first, however. Yes, we can afford some measure of salaries tax relief for people who earn less than $1 million a year. As the first chart shows, our days of fiscal deficit are behind us, at least for the time being.
On a rolling 12-month basis, July showed a slight fiscal surplus and this has on average been the picture since November last year, even after excluding $26 billion in receipts from debt issuance in July last year. I have excluded it because it ought to be. Borrowing money is not making money.
And now to the major point. It is all very well to talk about taxing the rich and relieving the tax burden on the poor, but it is what we already do. Relief for the poor or even the sandwich class will not amount to much for the simple reason that these people do not contribute much anyway.
The bar chart should give you the picture. It divides the taxpaying population into groups of 100,000 ranked by how much of the total salaries tax each pays. Thus, the 100,000 biggest taxpayers contributed 57 per cent of the total in the last fiscal year and the next 100,000, 18 per cent. The top 300,000, comprising less than 10 per cent of the working population, accounted for 85 per cent of salaries tax income.
Let us put this into further perspective. There are 3.3 million working people in Hong Kong but just over two million of them, or 62 per cent, paid no salaries tax at all last year and only 1.27 per cent paid the full standard rate of 16 per cent.
This skewing of the salaries tax towards an ever thinner base of taxpayers has grown steadily in recent years and the government has taken no significant steps to address the imbalance although regularly making noises about doing so.
The excuse of 'source close to government' for the latest proposal to take the other tack again is that wages are rising, which will on its own bring more people into the tax net. It may be so, but the effect will be only marginal. I grant you that there might be justification for it if income disparity has grown in recent years and there is indeed some evidence to suggest that it may have done so, although that evidence is tentative and does not indicate a significant widening of disparity.
What is certain with this skewed tax base, however, is that we run a distinct risk of fostering social irresponsibility in a pampered class of public housing tenants who contribute nothing to the public purse but take a great deal from it. This is not a prescription for a healthy society or economy.
And salaries tax is in any case not such a burden on our society that its base cannot be widened. It accounts for only 12.9 per cent of total government revenue. The equivalent figure in the United States is 43 per cent.
Our government's revenue from profits tax is greater than from salaries tax and it collects almost half as much from stamp duties as it does from salaries tax, more evidence that the tax burden is overwhelmingly on the rich.
I am not crying for the rich. My point is only that you cannot shift much more of the tax burden to the rich when they are already almost the only ones who pay tax.