• Thu
  • Sep 18, 2014
  • Updated: 4:06am
CommentInsight & Opinion

Hong Kong should reform its tax structure to redistribute wealth

David Lui says to negate rising social discontent, Hong Kong needs to rethink its tax philosophy and include in its budget an explicit equality goal

PUBLISHED : Wednesday, 27 August, 2014, 11:53am
UPDATED : Thursday, 28 August, 2014, 3:28am

Recently, Juzhong Zhuang, deputy chief economist at the Asian Development Bank, wrote in the Financial Times that Asia needs higher taxes to help its poor to prosper. More than 80 per cent of Asians live in countries where inequality is widening, he wrote. The same forces that drove the region's rapid growth - globalisation, new technology and market reform - are widening the gap between rich and poor.

He argues that fiscal policy can play an important role. First, governments should invest more in improving access to education and health care. Second, governments should adjust their tax policies to raise more revenue and fund increases in public spending. Asia's tax revenue base remains small by global standards.

One option is to increase personal income tax. Another is to introduce a consumption or corrective tax. Taxes on property, capital gains and inheritance are naturally progressive, claiming a higher portion of income from the rich than the poor.

There is no doubt Hong Kong has one of the lowest income tax rates in the world. The problem is that the tax burden falls mainly on the middle- and lower-income groups, who are also the most affected by rising housing prices and rental costs.

Many of the rich pay little or no tax, given that there is no tax on dividend income. Our income tax is probably the lowest of any major financial centre, yet the higher rates in London and New York, for example, do not mean they cannot attract people to work there.

So Hong Kong needs to rethink its tax and budget philosophy to boost revenue. This is especially needed in light of our ageing population, and warnings of dwindling reserves if expenditure continues to rise at the current rate.

Over time, we should widen the tax base to include a sales tax on luxury items while exempting daily necessities, introduce a more progressive personal income tax and slightly raise the corporate profit tax rate. Property tax rates should also be increased at the higher end to reflect sharply rising prices and wealth accumulation, while certain profits tax allowances or deductions should be reduced.

Policymakers should explain to the public how certain tax increases can fund different inequality issues, and the budget should contain an explicit equality goal.

Emphasis on economic growth is not the only solution, as this is affected by many external factors. It is wholly within our power to address income distribution, with the right leadership, educating the people about how such policies will benefit society, increase harmony and negate social unrest.

Another important reform in the management of our fiscal reserves is to match our future liabilities, such as provision of a universal pension, with what's available in the reserves. Targeting and quantifying our future needs means we can make better use of our reserves set aside for this purpose.

No matter what form the next chief executive election takes, the winner is likely to be the person the public believes is the most willing and able to tackle the blight of inequality in our society.

David Lui is a member of the Commission on Strategic Development and of the Town Planning Board. He has 30 years of experience in the financial fund management sector

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sipsip1238
"No matter what form the next chief executive election takes, the winner is likely to be the person the public believes is the most willing and able to tackle the blight of inequality in our society."
As much as I'd love for your comment to be true, it is highly likely that the next CE will not be someone who can improve the wealth gap situation, especially if he/she is selected by the Central Government. Sadly, most of our ministers lives in ivory towers and are more concerned about lining their own pockets than to help the people on the streets. The fact that there are ministers like Paul Chan who gets to continue on with his role even after what he has done shows that the Government does not care the slightest about equality.
johnyuan
I am in much agreement with Lui’s what he sees and suggests of income disparity and wealth redistribution in Hong Kong. I think Liu has a sense of equality. That sense of equality however is in jarring disparity for Liu as a member of Town Planning Board. Town Planning Board has never been exercising its power on equal footing but only in protecting the interest of property developers.
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So why Liu stays as a member of the Town Planning Board? Or is it creditable for what he wrote here that perhaps just to improve the Board’s image? Or to save his privileged job there to continue undermining equality in town planning process whereby ordinary citizens have presentation of equal footing as the rest of the participants?
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I still maintain my call to reorganize the Town Planning Board by firing the entire board. A way to get Hong Kong to be a better city (town) for all.
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My claim against the board seems to be substantiated by a former judge who was reported as saying in today’s Lai See:
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"The ordinance which purports to advance and protect the community interests, in fact, gives to the developers the weapon and the means to destroy the protection of community interests."
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I can't accept Liu's writing as sincere which is without an ounze of public relation work either for the board or himself.
virokick
I believe Mr Lui wrote this great article in good faith. You'll never hear other well known corporate figures asking for a tax rise to fight inequality.
David Lui has been with Schroders as the Managing Director for ages and made more tons of money than you could fire your speculative cheap shots here.
He does not even need the Town Planning Board job.
It's unfortunate that you don't believe there is such a thing as 'real' good people in this world.
johnyuan
To vir...
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Action is louder than talk. My posting is sincere but may be offending to individual including you. I get no money reward for all my postings here except often time to say what I have reasoned. The gap exists too jarringly to be ignored of Mr. Lui's writing and his official duty that greatly affects Hong Kong to be a better city.
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Please send a message to Mr. Lui that he should write a piece on reforming the TPB. Until then I stand by my last posting.
blue
HK has massive surpluses and you're asking to raise taxes???

How about the government first properly uses the money it already has rather than wasting it on pouring more concrete!
kongshan2047
Many people have the misperception that wealth can be redistributed by increasing tax rates on the wealthy and super rich, but that is far from the truth. This is because those who are rich can afford to recruit tax professionals to set up schemes such as trust funds or offshore accounts at tax havens and legally avoid paying any tax. So at the end, the tax burden of the society would eventually fall on the middle income or low income earners who do not have the financial resources to set up these schemes. This is exactly case in many high tax European countries, where the mega rich have properties and assets at tax havens like Monaco and it is the hardworking middle class who bear the tax burden. Secondly, high tax does not necessarily mean lower property prices. Both UK and US have high taxes, yet those familiar with NYC and London would tell you that property prices in these two cities are just as high or even higher than that of HK. This means people in these cities would have to pay both high tax and high rental/mortgage payment.
 
 
 
 
 

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