Good to reduce profits tax, but just make it simple
With its huge amount of fiscal surplus, the government only risks embarrassment by not finding ways to cut it
Chief Executive Carrie Lam Cheng Yuet-ngor is looking to go beyond her election campaign promises and reduce Hong Kong’s profits tax rate from the current 16.5 per cent to below 10 per cent for all businesses.
SCMP, September 28
Today a tale of two cities on the same day. In Washington, President Donald Trump proposed a tax cut while offering no hard ideas on matching expenditure cuts, thus risking embarrassment to himself in further blowing out the US fiscal deficit.
In Hong Kong, our chief executive proposed a tax cut and does not even have to think about expenditure cuts. She already has the money in so enormous a fiscal surplus as to risk embarrassment to herself if she does not find ways of reducing it.
Just look at the chart of our fiscal balance and tell me if words like enormous, humungous, gargantuan don’t come to mind.
That’s a surplus running at HK$185 billion a year as of the latest figures. Take note that we’re talking billions of dollars, not millions. It is the equivalent of 7.1 per cent of gross domestic product. It comes to HK$72,800 for each and every household in this town.
Find me any place across the world, other than the occasional oil sheikhdom in a year of high oil prices, which has ever achieved the like.
And the big irony of it for Carrie Lam is that it all comes to her as a gift from her opponent in the election for chief executive, our former financial secretary, John Tsang Chun-wah, aka Johnny Doomcloud, who never failed to take advantage of any opportunity to worry about the future.
The good news goes even further. These continuing fiscal surpluses have now built up so huge a miser’s hoard of fiscal savings that our government is embarrassed to tell you the full size
When the bureaucrats now tot it up, they take account only of HK$1 trillion of direct government deposits. They ignore the savings of other statutory bodies and they ignore the accumulated earnings on this investment. Put it all together and the true savings figure is now HK$1.98 trillion, equivalent to 77 per cent of GDP.
Now look at another number. The latest published figure for income from salaries tax, including personal assessment, is HK$62.6 billion. We are now running a fiscal surplus three times as great. Our fiscal savings are more than 30 times as great.
So here we have an economy with half of its housing stock in public housing, a comprehensive social security system, full medical care at only a pittance charge to the user, one of the world’s best and cheapest public transport systems and the list just goes on and on of things we have and others (like the US) do not.
And we can do this entirely without any form of personal income tax if we choose. Just think of what a world beater this would be. People elsewhere would find it almost impossible to believe and yet it would be true.
I cannot find any great objection if Carrie Lam instead chooses to cut profits taxes, but I do have two pieces of (unasked) advice for her.
One. Keep it simple. In today’s world, an earned tax cut is already so rare a thing that any at all is mighty impressive.
Two. Send John Tsang a note of thanks for the gift he gave you.