For a rainy day?
Month by month, as Hong Kong's financial reserves mount yet further, we wonder whether the government really needs to hoard so much. If not, how should it be spent? In most countries, when a government is flush with cash, it will be under pressure to ensure that any package of tax cuts and additional public spending is more generous to the poorer sections of society than to the rest.
In Hong Kong, by contrast, when the budget is healthy, the political establishment has tended to yield to pressure to ease salaries taxes and other 'middle-class' taxes (wine duty is a prime example), while maintaining a rather minimalist approach to assisting the poor. But times are changing, as democratic forces exert growing influence on such decisions. The pressure pendulum is swinging away from concessions for the better-off towards improving quality of life for the less well-off.
But the fundamental question has never really been debated. Namely, what is the optimal fiscal structure? How progressive should it be? Is 15 per cent a fair rate for salaries tax - or should it be 20 per cent - or only 10 per cent? Both the rate of salaries tax and the starting threshold are largely the result of some fairly arbitrary decisions way back in time, plus an ensuing reluctance to make any dramatic changes. But where, optimally, should they be set?
And is it right that there is no tax at all on dividend or interest income, so that the truly wealthy escape with paying virtually no tax? How much redistribution from rich to poor is justified, given that international comparisons show Hong Kong as having one of the widest rich-poor divides? Should we be concerned merely to ensure that no one is in abject poverty, or should we redistribute a bit more generously?
There are no hard-and-fast answers. The question of social equity cannot be answered by facts and figures alone. It involves conscience, and subjective judgments balancing selfishness against selflessness. In Hong Kong, 'welfare' has always been widely regarded - not least by the chief executive - as a dirty word.
But there are tens of thousands of decent and responsible citizens who are (or were, before becoming old or infirm) diligent in doing an honest day's work and providing for their families. Their labour, though possibly menial, may underpin much of the rest of the economy. But, through no fault of their own, they cannot aspire to very well-paid jobs. They deserve to be treated decently by society.
Most would agree. But the challenge is to design an integrated system of taxation and welfare provision that does not encourage welfare dependency by creating disincentives to work or save. That is easier said than done, as the disastrous experience of some European economies bears witness. But that is no reason not to try. At the very least, one could learn constructively from those experiences.
To be fair, some steps have been taken in Hong Kong to address the issue. Mandatory provident funds were introduced to provide a cushion for retirement, although they do not do much for the seriously poor.
And thought is now being given to the future of health care financing. Last year, the Commission on Poverty issued a series of worthy recommendations for tackling poverty, although most were at the community level and the commission did not really address the crucial higher-level fiscal and redistributional challenges.
What appears to be lacking is a comprehensive strategy that ties all the strands together. We cannot afford to ignore the possibility that there may be irresistible popular pressure towards more social expenditure, improved housing and the like. It would be better to have the possible solutions discussed well in advance than for a government to be forced into knee-jerk responses.
Some would argue that the government should already be moving faster down that road. Meanwhile, the projections justifying the fiscal reserve need to be articulated. And if, horror of horrors, new sources of revenue are at some stage required, the government needs to have decided if the goods and services tax is still the front runner, or else consider alternatives.
