Tax rises an option to plug Hong Kong’s wealth gap, says academic tipped to join government

Pan-democrat floats the idea of a capital gains levy and higher deductions from salaries of top earners

PUBLISHED : Sunday, 11 June, 2017, 11:08pm
UPDATED : Monday, 12 June, 2017, 9:35am

Hong Kong should consider ­raising taxes to counter a growing wealth gap that is now at a historic high, a social policy academic who is tipped to be the next ­welfare minister said.

Dr Law Chi-kwong, a member of the Poverty Commission, warned that the problem would get worse because the population was ageing rapidly and the next administration must figure out how to tackle elderly poverty.

His remarks came days after the government revealed the ­latest Gini coefficient measure – an index from 0 to 1 that measures the wealth gap, with 1 being the most unequal – for city households had risen from 0.537 in 2011 to a record high of 0.539 last year.

“We need to think of taxation if we want to improve the redistribution of wealth in the city, or else how will there be money for such redistribution?” Law said on a TV show on Sunday.

He said the city could consider introducing a capital gains tax – a tax on profits realised from the sale of assets – though he admitted this would be highly controversial and difficult to implement.

Another option would be abolishing the 15 per cent standard tax rate, Law said, which would mean those earning high incomes paid at the 17 per cent marginal rate ­instead.

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He suggested there would be less resistance to this idea than introducing new taxes.

“Those earning high incomes might be less reluctant to pay a bit more tax,” he said.

Law, a Democratic Party veteran who teaches at the University of Hong Kong, is expected to be the only pan-democrat and one of the very few new faces to join the cabinet of Carrie Lam Cheng ­Yuet-ngor, who takes over as chief executive on July 1.

The scholar, who is tipped to head the Labour and Welfare ­Bureau, highlighted the importance of the next administration in tackling elderly poverty to ­narrow the wealth gap.

“[The government] should ­figure out how to turn the assets of the [low-income] senior residents into a safe and stable revenue which they could receive every month,” he said, adding that the public annuity scheme to be ­officially launched next year might be an option.

A capital gains tax would immediately kill the city’s edge over neighbouring countries
Marcellus Wong Yui-keung, tax expert

This HK$10 billion project will allow retirees to invest a lump sum in exchange for a guaranteed monthly income until death.

Pro-establishment lawmaker and Executive Council member Jeffrey Lam Kin-fung said a capital gains tax would harm Hong Kong’s economic development.

“I hope Mr Law’s suggestion on taxation is only his personal view, not the policy of the next ­administration,” he said, accusing Law of having a very limited knowledge of the tax system.

Tax expert Marcellus Wong Yui-keung agreed a capital gains tax could severely hamper competitiveness. He said scrapping the standard salaries tax rate was a more feasible option.

“Hong Kong’s success is largely based on encouraging business and investment. A capital gains tax would immediately kill the city’s edge over neighbouring countries,” he said.

Outgoing welfare chief Stephen Sui Wai-keung said on Sunday that the Gini coefficient – which does not take residents’ ­assets into account – could not fully reflect the real picture of ­society, although the next administration might consider tax ­reform to improve the situation.