Must we pay taxes to be responsible citizens?

PUBLISHED : Thursday, 10 August, 2006, 12:00am
UPDATED : Thursday, 10 August, 2006, 12:00am

Tucked away in paragraph 46 of the government's recent consultation paper on a goods and services tax was a rather sinister passage, arguing that the paying of taxes strengthens a sense of civic responsibility. That is highly questionable.

Is a sense of civic responsibility - however it's defined - a precondition for having a vote? That's the stance of some in the anti-democracy lobby. Those who have devious minds might even suspect the government of extortion - public consent for a GST as the quid pro quo for democratic reform.

Those who don't pay taxes include pensioners, people who sweep streets or clean toilets, and those who serve as humble clerks in business empires. I know of no shred of evidence that such people are any less civically responsible than those who then walk along the clean streets or who - higher up in those business empires - enjoy the large salaries and fat profits that yield tax revenue. Society and the economy could no more function without people performing those tasks than it could without the managers and executives. Just because someone is not clever enough or motivated enough to command a salary above the tax threshold does not mean that he or she is in deficit on civic responsibility.

Nor does it mean that he or she, in an election, would cast a vote in a manner any less in keeping with the overall interests of Hong Kong than would others who, because they earn more, may appear superficially smarter.

Indeed, humbler people are often the ones who display the greater altruism. Having no alternative abode, they may see a greater alignment between their personal well-being and the fate of Hong Kong than do jet-setting tycoons or footloose professionals.

It is singularly insulting to a vast swathe of Hong Kong's population to suggest that they would become better citizens if only they paid taxes. In one sense, at least, the opposite may be the case: people who have to pay tax - and certainly those potentially liable for the largest sums - are not averse to spending considerable effort on finding means to escape paying. That scarcely equates with civic responsibility.

As for democracy, it may have some flaws and present some risks. But to argue that a society of Hong Kong's stability and maturity is not ready for full democracy is, effectively, to challenge the suitability of democracy throughout the developed world.

As an economist, I favour a goods and services tax becauses it raises revenue with a minimum of distortion: for instance, it applies evenly to all consumers' buying decisions and to investors' choices of where to put their money. This is especially true if exemptions are kept to a minimum - and the government must be congratulated on aiming for just that.

The consultation paper presents the proposals as a package which aims, for the first five years, to be neutral in its impact on the standard of living of all different stratas of society. Much of the opposition comes from those who want to see the tax system used for greater redistribution of income than in the past.

This may be a valid goal, and is a valid use of the tax system. But it is being addressed, for example, through the Poverty Commission, and is best left to be considered separately from the technical exercise of introducing a GST.

But if the government wants the case for a GST to be considered separately from the question of income redistribution, then the GST should also be considered separately from the question of good citizenship. The government has done itself no favours by linking the two.

Tony Latter is a senior research fellow of the HK Institute of Economics and Business Strategy.