Why should homeowners get all the tax breaks?
It’s time Hong Kong also looked after the interests of those who rent their homes, by allowing them to claim some deductions
When the United States Congress passed the country’s most significant tax overhaul in decades, Hong Kong Financial Secretary Paul Chan Mo-po responded by saying the city already had a competitive tax regime, so there wasn’t much room to cut rates.
And given the Western liberal press’ almost universal condemnation of the Trump-engineered tax cuts as a Christmas gift to America’s richest people and corporations, the Hong Kong government – regularly accused of colluding with big business – would not want any such association.
But, there is at least one important aspect of the US tax reform worth studying, or even emulating: scaling back long-standing tax deductions for homeowners.
Over decades, homeownership – in Hong Kong, the US and many other places – has been considered a social virtue that helps stabilise society by inculcating a sense of personal and civic responsibility among individuals.
So such tax breaks as those that come with mortgage interest payments, and home repairs and renovations, have virtually become entitlements.
But, privileging owners over renters has come with its own policy biases and societal instability. Why should renters, who usually own far fewer assets, be considered less important?
And when homes become prohibitively expensive, as in Hong Kong, why should the government subsidise people to buy inflated assets, thereby contributing to the property bubble?
The unaffordability of Hong Kong housing has become a major source of social discontent, especially among young adults.
The new US tax code will reduce deductions for mortgage interest and property taxes. And by roughly doubling the standard deduction for most taxpayers, there is less incentive to buy homes for preferential tax treatment.
In Hong Kong, mortgage interest on your principal residence is deductible for 15 years. For many homeowners, that covers most, or the entirety, of the mortgage period, especially for older buildings.
But renters, who are at the mercy of landlords, have no such help. It’s about time they got some breaks.
You don’t just have to subsidise people through public rental housing and the Home Ownership Scheme.
You can reduce tax subsidies for homeowners and use the revenue to subsidise tax breaks for renters, subject to a ceiling. Then impose moderate rent control – say, pegged to inflation – so their landlords can’t hijack the rental subsidies.
It’s not so outlandish. The government already pays some people to visit private doctors and hospitals, and is planning to subsidise health insurance for young people. Why not rental housing?