Monitor | Arguments for keeping Hong Kong's stamp duty fail close scrutiny
Much of the concern among those defending the status quo focuses on high-frequency traders, but the city has safeguards to address their fears
A newspaper column calling for a cut in tax would normally get an enthusiastic reception.
So although I wasn't surprised by the volume of readers' e-mail messages that flowed in after Monitor suggested a couple of weeks ago that Hong Kong should scrap its stamp duty on share trading, I was gobsmacked by the vehemence of their criticism.
There can be no doubt that high-frequency trading provides large amounts of liquidity
In a nutshell, Monitor argued that the city's 0.2 per cent per round trip tax on trading significantly raises transaction costs. As a result, liquidity on the Hong Kong stock exchange is shallow (see the chart), increasing the cost of capital for companies and eroding the returns earned by ordinary investors.
The government certainly doesn't need the revenues. Last year, stamp duties on shares raised just HK$20 billion, while the government ran a budget surplus of HK$65 billion.
So Monitor argued that both ordinary investors and the government itself, as the largest shareholder in Hong Kong Exchanges and Clearing, would benefit if the stamp duty were abolished.
The critics - and there were lots - divided into three camps.