I have a number of specific suggestions to make for the SAR government. Before I begin, I would like to point out that putting ourselves in the shoes of those directly impacted by any policy or government action is important. This principle has been used in marketing and in product design. Unfortunately, in the past we have seen plenty of examples in which the SAR government has failed abjectly to deliver. My suggestions include ways to serve the public better as well as ways to raise revenue for the government.
First of all, the number one priority today of course is containing the COVID-19 pandemic with the least adverse impact on the social and economic lives of Hongkongers. I would suggest that the current prohibition on group gatherings be modified to allow members of the same unitary family who live together under the same roof to eat at the same table without number limit, while maintaining the two-at-a-table requirement for people from different families. If these rules are enforced strictly, I do not see why eateries cannot be allowed to remain open in the evenings.
We can apply the same principle on our public beaches. It does not make any sense to me that our public beaches are closed. Actually closing down our public beaches makes things worse. If the public beaches are closed, more people will gather in places that remain open, which include our public parks. The least that we should do is to allow people who live under the same roof to walk on our beaches and thus enjoy the therapeutic sounds of waves and sea breezes, which are very important given the horrendous mental stress that Hongkongers are suffering.
Perhaps it is too late to reverse action. The cancellation of the end of Chinese New Year flower markets is very unfortunate. It has caused huge losses to the growers of the flowers who have invested their money and time and had just these days to reap their harvest. The government obviously believes that this will reduce crowds, but those who buy flowers would still shop, and they will be visiting flower shops that remain open in greater numbers. What the government could have done better is to extend the number of days of opening and to regulate the number of visitors. Hong Kong is supposed to be a smart city. It really should know how to do this with our technology and know-how. If it is too late to reverse action, I would think the growers need to be compensated at least for the loss of their investment.
There was a report last weekend that a person under mandatory quarantine who felt unwell and went to the Eastern Hospital for treatment was left in a tent outside the hospital to face 8 degree Celsius for 8 hours through the night. If the hospital authorities would put themselves in the shoes of the patient, they should have done better.
Given the already huge and unprecedented fiscal deficit in excess of HK$300 billion (US$38.7 billion) for the current fiscal year, the government may be right in not offering another cash payout scheme to all Hong Kong permanent residents. But more targeted support should be given to those who bear the brunt of the economic impact of the pandemic. In order to do this, more manpower and administrative cost will be needed, and this will be financially burdensome. Still, the extra spending is worth it.
I now come to the revenue side of my suggestions. As a general principle, a tiny tax on big turnover is the least burdensome tax. For this reason, I would strongly recommend increasing the stock transfer stamp duty, which currently stands at 0.2 percent of the value of the trans-action, equally split between the buyer and the seller. The average daily turnover of stocks in 2020 was HK$129.5 billion, an increase of 49 percent when compared with HK$87.2 billion in 2019. Given that the turnover is still rising, increasing the stamp duty from 0.2 percent to 0.3 percent will produce quite a sizable and growing additional revenue to the tune of some HK$30 billion a year. Given that there is absolutely no administrative cost involved to capture this additional revenue, it is very cost-effective. Given that the 0.1 percent is split between buyer and seller, the impact is hardly noticeable.
I can anticipate objections from the financial sector. One commentary on the internet says: “Taxing all equities trades, including market making, can dampen overall liquidity. That in turn can impair price discovery and widen bid-ask spreads, adding to the risks of trading equities and their derivatives.” However, I have yet to see any convincing empirical evidence to that effect. Even though transaction taxes are known to negatively affect economic efficiency, the impact depends on the size of those taxes, particularly relative to the volatility of the prices of the assets in question. To stem fears that the government may raise it again, an announcement of a commitment not to raise the stamp duty again within, say, 10 years may be warranted. If we are concerned about the impact of stamp duties on efficiency, there is a stronger case to cut the special stamp duties on property trading.
The author is a senior research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.
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