Li Ka-shing was well meaning but rather unhelpful in his corporate tax idea
Raising more funds via higher corporate taxes wouldn’t be much use to a government whose coffers are already overflowing
Hong Kong’s richest man has called for a higher profits tax rate to tackle the wealth gap ...
SCMP, June 23
He wasn’t really quite that bold. What Mr Li Ka-shing actually said was: “Many poor people would benefit if the profits tax rate was raised by one or two percentage points”. He then declared himself against taxing the rich more.
Mr Li’s public pronouncements tend to be like that. He is in favour of all good things while not always quite sure what they are and thus not particularly aware or concerned that some of his views may be contradictory.
Here, once again, he has not helped the public debate much. Just how is a slightly higher profits tax to benefit “many poor people”?
In the first place, our government does not need the money. It runs a consistent fiscal surplus. Over the last 10 years this has averaged about 3 per cent of gross domestic product. The result is a build up of public savings that now amounts to almost HK$1.8 trillion or 72 per cent of GDP.
Our financial secretary, John Scrooge, is a classic hoarder who is always worried that the sky is about to fall in. All that he would do with the extra money raised by Mr Li’s higher profits tax is invest it abroad, probably in run-for-cover US Treasuries that offer a yield of a small fraction of nothing.
This might help the US government afford a few more wars in the Middle East. What a worthwhile and laudable use of our money.
Alternatively, Johnny could just lose the money. He has already done a fine job of this over the last fiscal year with the accumulated surplus on the Exchange Fund down by somewhere just over HK$100 billion because his investment picks, unfortunately, weren’t the thing.
But this sort of waste is what you must expect in Hong Kong’s fiscal environment if, as Mr Li has done, you talk of raising money before you begin to think of how you would spend it.
Does he favour the universal pension or public housing rental rebates or larger social security payments? All have been proposed. Let’s hear this. All he has done so far is set the cart before the horse.
He might also be reminded that charity begins at home. His CK Hutchison Holdings last year paid HK$2.63 billion in tax on HK$47.26 billion of pre-tax earnings.
I am well aware that assessable earnings for tax purposes can be different from what is shown in the published profit and loss account and that not all of the money was made in Hong Kong. Yet what we have here is a tax payment of 5.6 per cent in a jurisdiction where the standard corporate tax rate is 16.5 per cent.
Might you care to top that tax payment up with a little of that “one or two percentage points” you mention, Sir?
But what is also worth remembering here is that the largest shareholder after the Li family holdings of the stock is likely to be the Hong Kong public through the Mandatory Provident Fund and the government’s Tracker Fund. Hike the corporate tax rate and we get hit, too. This does not just affect the rich.
It is not likely to affect the rich anyway. Their return on their investment is principally dictated by such things as the average risk-weighted percentage yield in the currency of investment. Push the return down with a higher tax and the price of the investment will go down so that the risk-weighted yield stays the same. All you achieve is to discourage investment.
Let me put this another way. The bottom stones of the pyramid always carry the greatest weight. Likewise, the burden of public spending is always borne on the shoulders of the working population. If you want to ease the burden be careful how you spend the money. This is more important than how you raise it.
The best idea if you don’t need the money is not to take it from people in the first place. But Mr Li has not even got that far in his thinking on public finance. As I say, he has not helped the public debate much.