Departure levy leading all astray

IT is that time of year again when those pulling the Government's purse-strings start casting around hopefully for new sources of revenue.

As the lengthy task of drafting March's budget gets under way in earnest, even in the best of times there are always more spending projects on the table than existing sources of government income can finance.

This year, that pressure to find new sources of revenue is particularly intense given the forecast of a $36.5 billion fiscal deficit.

That explains why Financial Secretary Donald Tsang Yam-kuen has been talking of the need to consider a sales tax, an idea tentatively raised in this year's budget. But he apparently recognises this will not be a serious option until the economy is firmly back on the growth track. Which means it is of no help in closing the current budget shortfall.

In theory, the idea of imposing a land departure tax on those crossing the border to the mainland ought to provide a more immediate solution. Perhaps that explains why the issue has cropped up so often recently.

The Government first leaked the idea to the media early this year. Mr Tsang then endorsed it in his March budget.

Treasury Secretary Denise Yue Chung-yee revived the issue by raising it in the Legislative Council in July. Then she mentioned it again at a post-Policy Address press briefing.

Officials deny there was any deliberate campaign to whip up interest in the issue, insisting Ms Yue was simply responding to questions on both occasions. But, whether intended or not, that has been the result.

The possibility of a departure tax has now assumed such a high profile it even formed the subject of a Legco debate last week, giving the administration a perfect opportunity to rehearse all the very worthy principles in support of such a tax.

Ms Yue conceded many of the problems that officials have been denying for years. Namely that the Government is not only unhealthily dependent on property-related revenue but also has a tax base which is shrinking at an alarming rate.

Barely 40 per cent of the workforce pay any salaries tax and the number paying the standard 15 per cent rate could fall as low as 0.3 per cent this year.

A land departure tax would help correct this problem by providing a stable, and growing, stream of income. It would also correct the present injustice where those who travel by air or sea pay such a tax while those who depart by land do not.

But while principles are one thing, politics are quite another. Judging from last week's debate, there is not the slightest chance of such a tax ever being enacted.

The Government may have narrowly escaped defeat, thanks to the convoluted split voting system laid down in the Basic Law to clip Legco's wings. But that did not stop a majority of legislators from voting against the idea. Given this, it seems doubtful the departure tax will ever make it off the drawing board. In any case, work on the idea is not nearly as far advanced as all the noise the Government is making would indicate.

As recently as last month, Mr Tsang had not even been briefed on options for its implementation. Ms Yue admitted last week that officials were still undecided on such key issues as how to collect the tax and who should be exempted from it.

Officials are not even close to issuing drafting instructions to government lawyers. These are needed several months in advance of any announcement, so the necessary legislation can be prepared.

Despite their rhetoric, all the signs are that officials have not yet decided to go ahead with a departure tax. Nor are they likely to do so while opposition remains so strong. That, of course, begs the question as to why the administration is continuing to talk up such a political non-starter.

But Mr Tsang is a master of the art of floating trial balloons. Most probably, he is using the idea as a stalking horse for something else.

Perhaps it is to test the likely opposition to any attempt to introduce a sales tax at a later date. Alternatively, it could just be designed to make Mr Tsang look benevolent when he withdraws the departure tax in his next budget.

Whatever the truth, he clearly has his own reasons for publicly promoting a levy unlikely ever to be implemented.