Sandwich class to suffer the brunt of speculation tax

PUBLISHED : Tuesday, 23 November, 2010, 12:00am
UPDATED : Tuesday, 23 November, 2010, 12:00am

Police raid ICAC, arrest three graft-busters

SCMP headline, Nov 20

Tee-hee-hee, ho-ho, haw-haw-ha-ha-ha

Property speculators slapped with up to 15pc extra stamp duty

SCMP headline, Nov 20

I wonder if anyone has ever acquainted Financial Secretary John Tsang Chun-wah with a commercial process called incorporation. Here's how it works. You ask your lawyer to set up a company for you. He does. Well, fancy that, you are now a company chairman.

Let's say you then decide to buy a HK$8 million flat. Being wise, you do it through your new company rather than in your personal name. It is the only thing your company does. It owns a flat, nothing more.

Three months later, with the market roaring up, the property agents are quoting your flat at HK$10 million. You come to the view that the market has gone up way too fast and you sell. But you don't sell your flat. You sell your company.

You are now in a position to snub your nose at Mr Tsang's new 15 per cent anti-speculator stamp duty on properties flipped within six months. You have sold no property. You have sold a company. The company remains the owner of the property

You may, of course, still have to pay Mr Tsang something, a HK$5 transfer deed stamp perhaps, but it will cost you only the spare change in your pocket, not HK$1.5 million.

And if Mr Tsang then says he will hunt down cheats like you and make you pay the full 15 per cent, you remember that you were also wise enough to tell your lawyer to incorporate your company in the Cayman Islands.

Happy hunting, John.

What we have here is just another variant of an old game called 'let's-squeeze-the-sandwich-class'. The rich don't pay. They incorporate. The poor don't pay. They live in public housing. It's Mr and Mrs Wong, working eight to seven in office jobs, who will be hit.

If Mr Wong suddenly loses his job or falls seriously ill and Mrs Wong's job is not enough to pay the mortgage on the flat they bought less than six months ago, well, tough luck for them but, be fair now, it's not our financial secretary's fault he can't foresee all contingencies. Sometimes you get a little collateral damage. It can't be helped.

I wish I could fathom the thinking here. It seems to come in part from the Bauhinia Foundation, which is in the business of telling our government what it wants to hear, and an International Monetary Fund bureaucrat who has never dirtied himself with a real job in finance (it's not the IMF way).

The underlying assumption seems to be that price movements in any market are a reflection of the presence in that market of people who are not intentional end users. When you have more of them prices go up. When you have less of them prices go down.

Obviously, there is a relationship. Speculators are to be found in force in booming markets. They are attracted to them. But it takes a Bauhiniac or an IMF academic to think the process works the other way round, that speculators attract rising prices rather than rising prices attracting speculators.

The present boom in our property market is primarily the result of low interest rates that we have courtesy of a US Federal Reserve system which has come up with a wonderful new theory, one never thought of before, that helicopters are made for dropping money on peoples' heads.

There is not much we can do about this until common sense returns. Hong Kong is tossed around in currents much bigger than itself. If we sit tight we will come through this without too much damage. We've been through it before.

But Mr Tsang feels himself under pressure to do something and therefore he does what every financial secretary before him has done when things get a little rough, which is to identify a symptom of the trouble, call it the root cause and then throw money at it or ban it. Fortunately, instead of wasting public money on it this time, he has banned it, the lesser evil of the two. Let's call ourselves lucky.

But it may mean that we miss a good show, the one you soon get on the way down from a market peak when all the speculators holding lines of overpriced flats are howling for relief and screaming that it's unfair and the government should do something about negative equity. If we knock them off stage now, the show may not be quite so good.

Then again Mr Tsang would very likely nod his head in sympathy and plead with the banks not to squeeze them. Some people just don't know how the game works.