Questions about our tax base are crying out for answers

PUBLISHED : Friday, 07 October, 2011, 12:00am
UPDATED : Friday, 07 October, 2011, 12:00am


It looks possible, at the moment, that we will have a contested election for chief executive next March with two candidates from the pro-establishment camp hoping to take office in mid-2012.

If that is the case, it offers us an opportunity to ask some serious, tough questions of the candidates and compare the answers. One good subject, which occurred to me while reading material issued ahead of the policy address next week, would be taxation.

For decades, it seems, Hong Kong governments have stressed the importance of a tight fiscal policy and a balanced budget, and at the same time they have expressed concerns about our narrow tax base. The current administration has largely maintained this stance and, in advance of the policy address, specifically raised the issue of the narrow tax base again.

The basic instinct of our officials is to see the small number of people paying salaries tax (and companies paying profits tax) as a problem. Their attitude is that, ideally, we would find ways to develop a broader tax base.

An obvious question for candidates in the race to be chief executive is: do you agree with this basic analysis? The two probable pro-establishment candidates are no longer associated with the government, which has long held this line that the tax base is too small. If they ever had doubts about it - or if they feel the administration has in fact been understating the problem - they can now say so.

It is accepted wisdom that too few people in work pay tax. Some 60 per cent of workers pay zero salaries tax, and just 6 per cent of them pay 84 per cent of all the revenue collected via salaries tax. (All these figures are from 2008-09.)

Another question for candidates is: does this distribution of the tax burden seem fair to you, or do you think more people should be paying a share?

Some people say that this imbalance makes universal suffrage a threat to the minority who do pay, as the majority of voters would have no incentive to keep government spending down. It would be interesting to hear whether the candidates agree with that, too.

Another way to look at the imbalance is to turn it on its head. After all, even people earning HK$3 million a year (11,000 out of 3.5 million workers) pay tax at an average effective rate of just 14.8 per cent - which most of us would agree is pretty affordable.

It would be interesting to ask chief executive hopefuls to consider whether the fact that 60 per cent of workers pay no salaries tax is a reflection of low pay. In other words, the imbalance - 6 per cent of the workforce paying 84 per cent of the salaries tax - is a reflection of serious inequality in earnings.

Would our candidates agree that this may be the real problem, and the narrow tax base simply a symptom?

It is impossible in Hong Kong to separate land and property from the issue of taxation.

The government uses land as a source of revenue; everyone, including the retired and the lowest-paid workers, pays an invisible, broad-based tax as property prices are passed on through other prices.

What the middle class do not pay in salaries tax, they are paying in mortgages; what small and medium-sized companies may avoid paying in profits tax, they pay in rent.

A simple question for the candidates is: will you keep this system or reform it?

You can probably think of other subjects to ask the candidates about. Education is an obvious one; quality of life is another.

What would we learn from the candidates' answers to these questions? There are not necessarily right or wrong answers.

We might learn whether each candidate would perhaps prefer the usual 'safe' way of doing things, or whether he might risk trying new approaches. It would give them, and the rest of the community, a chance to think seriously about the status quo and alternatives.

Most of all, perhaps, it would let us compare candidates' ideas, rather than just their images.

Bernard Chan is a former member of the executive and legislative councils