Alternative route to revenue

PUBLISHED : Saturday, 15 July, 2006, 12:00am
UPDATED : Saturday, 15 July, 2006, 12:00am

Hong Kong should not casually discard the simple taxation system that it has boasted about for years - despite its undeniably narrow base. Only one-third of the working population pays salaries tax - that's 1.2 million taxpayers.

While profits and salaries taxes account for only 40 per cent of its annual income, the government has been able to maintain a balanced budget despite increased spending in recent decades. That was made possible by the income from land sales.

The government pursued a high-land-price policy from the 1970s until the outbreak of the Asian financial crisis in 1997. Then it realised it could not rely on land-sales revenues to cover its spending indefinitely, and started to consider introducing a goods and services tax to broaden the tax base.

Land-sales revenues, however, are tantamount to an indirect tax. Over the past 30 years, the proceeds have been spent improving people's lives by providing affordable housing for half of the Hong Kong population.

But the city's transport policy has been less successful, and here is where reformers should look for increased revenues instead of changing the tax system. The transport policy of private ownership has enabled a small group of entrepreneurs to reap excessive profits for years, and weakened the city's competitiveness.

Not only does the general public bear substantial transport expenses, but the government does not seem to have benefited from the policy - apart from the profits tax paid by operators. And the concession on import duties for ultra-low-sulfur diesel fuel has cost the government $1 billion each year.

Transport expenses can use up more than 20 per cent of the income of a person earning $5,000 a month, if he or she lives in remote areas like Tin Shui Wai or Tung Chung, and has to travel into the city centre. It is unreasonable that Hong Kong's bus companies - which have been granted franchises for many years - pay no franchise fees. They have also sought profits by converting staff residences and bus depots - built on land the government granted them at low prices - into commercial properties.

Then there are the build-operate-transfer transport infrastructure projects undertaken by private companies, which have failed to ease congestion and lower transport costs. Operators of the Eastern Harbour Tunnel and Route No 3, for example, have raised tolls at will. So motorists keep using the Cross Harbour Tunnel and the Tuen Mun Highway, which remain as congested as ever.

The government should review its transport policy. Reforms should start with the two rail companies, as they are the major components of the transport system, carrying over 3 million passengers every day. Although the MTR Corporation has been privatised and is going to be merged with the Kowloon-Canton Railway Corporation, the government still holds the controlling shares, and should exercise its influence over the setting of fares.

The government effectively funds the two railways by granting them land for property development. Therefore, instead of pushing for a high rate of return through train fares, they should try to relieve the cost burden of public transport users - while still providing their investors with reasonable returns.

It is not necessary for the bus companies, which pay only a profits tax to the government, to remain private. The government subsidises bus companies through the duty concession on diesel and huge annual spending on building and maintaining roads. Bus services should be reformed, cutting overlapping routes and reducing the number of vehicles - to improve congestion and pollution.

The public has already paid a heavy price for the transport policy. It is time the government took a serious look at redressing the problem.

Albert Cheng King-hon is a directly elected legislator