Walled-off land revenues keep the fat cats purring | South China Morning Post
  • Thu
  • Jan 29, 2015
  • Updated: 7:34am
Jake's View
PUBLISHED : Sunday, 19 January, 2014, 2:53am
UPDATED : Monday, 20 January, 2014, 8:13am

Walled-off land revenues keep the fat cats purring

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

A leading economist advising the government on fiscal policy is urging it to change accounting rules to stop one-off windfalls from land revenue being used to fund recurrent spending.

SCMP, January 17

Let's repeat some history for those who cannot remember it. The reason we have peculiar land-use policies is that ungrateful American colonists rebelled against their rightful king and master in 1776 (I'm Canadian).

It left British bureaucrats to ponder how they might in the future make colonies pay their own way, if the United States refused to do so prior to becoming independent - and then had no choice but to do so.

The answer came easily enough. What we will do, said these bureaucrats, is put all land in our colonies on leasehold terms and then raise money by selling and converting leases.

This they did and it is how Hong Kong was bequeathed its land tenure system.

But the system ran into a hitch about 30 years ago with a financial secretary who forecast a HK$10 billion fiscal surplus but wound up with a HK$10 billion deficit because the economy faltered and his land revenues nosedived.

He was so embarrassed by this that he set up a separate capital-works reserve fund. In the future, he said, all income from land sales would go into this fund and it could only be used for infrastructure projects.

Why land-sale revenue should be declared off limits to all other public uses in a fiscal system that is fundamentally dependent on land sales remains a puzzling mystery, but businessmen whose wealth derives from pouring concrete have always applauded this regime.

And now they wish to make doubly sure of this ring-fenced revenue by adding barbed wire to that fence. With the way things are going, you see, land-sale revenue might be used to support the aged and this must never be. It is written in the laws of universe.

Goodness me, if we keep old people alive with the money that we could instead squander on a useless bridge to Macau or a pointless new railway to the border, well, where would the world be? Keep your hands off that cash.

They cannot actually express it this way, of course, and so the excuse we constantly hear is that land revenues come as "windfalls" which, as our report had their mouthpieces saying, "fluctuate dramatically" from year to year.

Clearly, we are in trouble if a steady, unavoidable expenditure on social programmes must depend on so fickle a source of revenue. Yo-yos will have nothing on them compared with how our fiscal balance will bounce up and down.

Good scare story. I love good scare stories. They send that wonderful tingling shiver right up your back.

But this one is as false as most are. As the chart shows, when you take land premiums out of the government's total revenue, you get a slightly more volatile revenue stream but no yo-yo effect.

The fact is that a good number of other revenue sources are as volatile as land sales. When we run into economic trouble, everything gets hit, not just the property market.

Try investment income. We classify it as recurrent income, but from the 2000 to 2002 fiscal years, it dropped from HK$36.8 billion to HK$331 million, a fall of more than 99 per cent. Some recurrence.

So let's just call a spade a spade. This one is being used to shovel our money the way of a select few tycoons who have fooled our bureaucrats into thinking that public achievement is measured in terms of tonnes of concrete poured.

jake.vanderkamp@scmp.com

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