In his three budgets to date, Financial Secretary Donald Tsang Yam-kuen has always managed to pull a rabbit out of the hat. In last year's economic gloom, he produced a $8.5 billion package of tax concessions and froze government fees and charges for the year. The measures helped to minimise the pain but, now that good news is trickling in, Mr Tsang is giving the city fair warning he has no more tricks to perform. In a speech on Wednesday, he described how the tax base is shrinking, now that its coffers are no longer filled by property market revenues. When 70 per cent of salaries tax is drawn from 15 per cent of the working population, with 80 per cent of profit tax revenue coming from just five per cent of taxable businesses, other sources of stable revenue must be found. The implications seem clear: some form of consumption tax is in the offing. Mr Tsang has floated the general idea on previous occasions, like others before him. But he has always added the caution that such a move could only be considered when the economy showed both healthy growth and low inflation, and that day is still some way off. By next year's budget, things may be different. Small signs of recovery now emerging result partly from an upturn in external trade in goods and services. Mainland exports are strengthening, substantially raising Hong Kong's re-export traffic. Tourism figures are up, deflation is believed to have hit bottom and even retail sales are picking up a bit. All are signals which could persuade Mr Tsang that the time to bring in a purchase tax is drawing near, either on the wholesale or retail level. For one accustomed to winning praise for his economic guidance, that could be the most unpopular move he has ever made. No matter how he might soften such a tax, perhaps by exempting basic commodities such as food, the political opposition would be formidable. It is a way of broadening the tax base to include all sectors of the community, which is fairer, but it is also guaranteed to topple him from his pedestal as Hong Kong's most popular bureaucrat. However, economists estimate that a five per cent tax on consumer goods would bring in $30 billion per year, and by means which would not fluctuate wildly in a changing economic climate. Even so, few would like it. A former chairman of the US Senate finance committee used to quote a little rhyme which summed up this public reluctance to pay: 'Don't tax you, don't tax me, tax the feller behind the tree.' Hong Kong people have enjoyed decades of extremely low taxes. But it may be time for more of them to join the man behind the tree.
