Tycoons show they are good at playing the numbers game
Hong Kong tycoons are good at making money. In politics, they are no less talented.
Watching the making of the HK$10 billion Community Care Fund, which the government announced this week as a joint effort by the private and public sectors to help the poor, one can hardly miss that.
Wind the clock back to the summer, when sou fu (hate the rich) was the phrase word in headlines every day for months. Behind the phrase was rising income disparity, rocketing property prices and the dishonest sales practices of various developers.
Calls have been growing to raise the profits tax rate to accommodate a bigger welfare bill. Profits tax was cut from 17.5 per cent to 16.5 per cent in the 2008-09 financial year by Chief Executive Donald Tsang Yam-kuen to fulfil an election promise made in 2007.
Business groups have put up a fight against any suggestion of higher taxes. Lunches have been organised with senior media managers. The core spin is: 'We are rich because we are smart and hard-working. We've paid the tax and the rest is the job of the government.'
On September 3, businessman James Tien Pei-chun crystallised that idea in an article in a Chinese-language newspaper. He called for the diversion of HK$110 billion from the HK$2.2 trillion foreign-exchange reserve into a fund to help the poor.
'The government is not short of money. Why be a miser? While the treasury is flooded with money, the government has been very mean to the public. That has made Hong Kong the champion in the region in terms of income disparity,' Tien wrote.
Tien is no ordinary businessman but the former chairman of the business-funded Liberal Party. His suggestion was immediately echoed by tycoons such as banker David Li Kwok-po.
Top government officials were immediately on the defensive.
A month later, we got the Community Care Fund. But it is a lot less than Tien's HK$110 billion proposal and it is to be funded by the government and the business sector 50-50.
Within 24 hours of its announcement by Tsang in his policy speech, various tycoons and their listed arms issued statements pledging hundreds of millions. It all smelt of orchestrated co-operation, if not compromise.
It may appear that the tycoons have lost a few dimes. But think about the alternative, and you will see how good they are with numbers.
The alternative is a rise in profits tax - say,back to its 2007 level. A back-of-the-envelope calculation shows that a one percentage point increase in tax will cost Hutchison Whampoa, Henderson Land Development and Sun Hung Kai Properties about HK$200 million each year.
It's much cheaper to make a one-off, tax-deductible donation. The Hutchison and Cheung Kong group jointly promised to donate HK$250 million, while SHKP will chip in HK$200 million, according to their press release. What a coincidence!
Sure, the call for profit tax increase will not go away. But the fund will delay it for sometime, at least until the next chief executive is in office in 2012.
And don't forget to count the invisible gain. (Perhaps visible is the more accurate word.) Donations to the Community Chest or the many other charitable organisations in town have been taken for granted, especially by the media. But the Community Care Fund is new and it is not among the many existing charitable groups. It will be part of the quasi-government establishment. It will be run by a celebrity-grade board. Its donations will be widely reported. It will be very visible.
In fact, it's already very visible. Local media have already made the tycoons' donations headlines. Normally any sum smaller than HK$1 billion will only be a filler or at most the lead on the social page. This coverage comes with pictures and stories. 'Fund dries widow's tears'; 'Cancer victims walked the Great Wall with Community Care' or 'Grannies enjoy new Community Care television sets'.
That's perhaps why the fund will not be entrusted to any existing charitable organisation. Instead, it will be part of the quasi-government establishment well known for wastage, bureaucracy and inefficiency.
How the fund can be run with 'minimal administrative costs' and 'the greatest flexibility' to deliver 'timely rain' to those in need, in the words of the fund's head campaigner and chief secretary, Henry Tang Ying-yen, is anybody's guess.
Stop being cynical, some of you will say. After all, HK$10 billion is still a decent contribution.
Let's speak with figures. According to Tang, the fund will spend mainly its investment return, though the seed money will be used in very exceptional circumstances.
If the fund can match the 5 per cent annual investment return of the Exchange Fund, about HK$500 million will be available every year. That is quite an optimistic assumption.