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Friday, March 26, 2021, 11:02
A fresh opportunity to tackle big issues
By Richard Cullen
Friday, March 26, 2021, 11:02 By Richard Cullen

Radical constructive reform of Hong Kong’s political structure has been triggered by an uncommonly destabilizing, offshore-influenced insurrection that was propagated during a period of serious geopolitical tension and which was followed up with the “35-plus” plan to generate a political-constitutional crisis aimed at creating still further destabilization in Hong Kong.

Meanwhile, for well over a decade the operation of the Legislative Council (LegCo) had grown more ineffective as a result of incessant filibustering, irrational exploitation of procedural rules, stunt-based politicking, abuse of judicial reviews and even brazen physical harassment. Unsurprisingly, LegCo is a primary focus of these approaching, major reforms.  

Certain unknowns remain: who can we expect to take up these new seats in the reformed LegCo and how well suited will they be to cope with the serious demands they will face as lawmakers. It will take some time for the new LegCo to find its feet. But returning LegCo to its proper role as a functional legislature is, prima facie, a “peace dividend” in itself. Compared to where we have come from, this, on balance, can only be good for Hong Kong. 

It is, thus, now reasonable to consider how to address serious Hong Kong challenges in ways which were previously inconceivable because of the entrenched “log-jam” role of LegCo.  

Let me begin this process by raising a controversial proposal which Hong Kong should once more consider constructively and with an open mind: a Goods and Services Tax (GST). The previous attempt to discuss the introduction of a GST in the HKSAR in 2006 went nowhere, of course. But that exercise does provide sound lessons on how to shape a constructive GST policy — and not just on how to sink a GST.

That earlier GST initial proposal and discussion arose primarily from the experience of the Asian Financial Crisis (AFC). Following the onset of the AFC, property prices in Hong Kong plunged by around 70 percent at their nadir. For the first time in decades, Hong Kong had to rely on regular deficit financing, making significant use of its ample fiscal reserves. This, in turn, drew attention to the visibly narrow tax-base in Hong Kong, with its heavy reliance on land-related revenues.  

Most everyone is looking to the government — and the reformed LegCo — to work on positive policies to enhance life in Hong Kong as the pandemic is brought under long-term control

The GST was advanced by the government, not unreasonably, as a new tax, which could be applied fairly efficiently and which could address this tax-base problem. This, however, proved a crucial weakness in the proposal. It was presented, above all, as a revenue strengthening measure. A broad opposition coalition including the business sector, pro-establishment politicians and the Pan-Democrat opposition soon materialized to express hostility to the GST for a variety of reasons. Some leading tax policy experts argued for the GST but the opposition was far more forceful. Moreover, as it had often happened before, the property sector began to rebound, moving Hong Kong away from deficits and back into surplus-mode.

Today, the SAR government is once again operating in deficit-mode. We are rightly relying on significantly high deficit spending to cushion the huge downward economic impact of the COVID pandemic. Our reserves have been markedly reduced.

Most everyone is, however, looking to the government — and the reformed LegCo — to work on positive policies to enhance life in Hong Kong as the pandemic is brought under long-term control.

Implementing new policies designed to rekindle achievements in priority areas like, health care, aged care, youth employment, housing and education, for example, will require serious funding. If a GST is to assist in this regard, the GST rate should (as in 2006) be set low, at around 3 percent. Some revenue will be needed for a core fund, well-designed to compensate the least well-off with targeted grants and subsidies.  

The primary key, however, to securing acceptance of any future use of a GST is that all net funds raised should be earmarked, from the outset, to fund one or two new and needed social welfare initiatives, aimed at improving the livelihood of those who are least well-off.  

There are other broader, constructive uses for a continuing GST revenue stream which could be investigated.  These include the funding of a “living wage” supplement for those most in need or the creation of a firmly means-tested, old age pension.  The Global Institute for Tomorrow, based in Hong Kong, recently issued a well-focused report entitled “Diversifying Hong Kong’s Economy and Creating Youth Employment Opportunities.”  The report included several schemes designed to foster youth employment and lift the capacity of the HKSAR to take advantage of identified opportunities and to address certain social benefit shortfalls. Two related proposals stand out as potential funding projects for any GST policy move: A Care Agent and Neighborhood Service Scheme to increase the corps of carers for the city’s aging population; and a network of Community Wellness Clubhouses managed and staffed by young professionals. They offer focused, practical, locally-scaled improvements to general health care and aged care. Moreover, each stresses the creation of additional long-term employment structures for younger members of society.

These suggestions are made not to create some sort of final list. They are just indicators of how any fresh move to introduce a GST in Hong Kong can readily locate pre-checked, worthy purposes to which GST revenues could be directly applied on a continuing basis from Day One. 

The tax policy advantages of a GST include its efficiency and also, ultimately, its capacity to address inequality. With modern computerized processing systems, tax collection costs are low. It is true that a GST hits low-income groups hardest — hence the need for the core fund noted above. But it is the more-wealthy, with high spending capacity, who pay the most GST. Moreover, it is a tax which is a notably difficult to evade.

Fortunately, we now have the opportunity to think less apprehensively about a range of policy options. Given the necessity to draw on our reserves so heavily in this pandemic-induced economic depression, coupled with the clear need to address major livelihood shortfalls, it makes good sense to review the positive options created by looking at a low-rate GST fully allocated to enhance our social-welfare regime in one or more intelligent ways.  

The author is a visiting professor with the Faculty of Law, the University of Hong Kong.

The views do not necessarily reflect those of China Daily. 

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