It describes itself as a budget of “Leaving Wealth to the People.” But a closer examination of Hong Kong’s 2008-09 budget, presented February 27 shows it to be more concerned with “Giving more Wealth to the Wealthy.”
Although the volume of words devoted to proposals to help the old, poor and under-privileged suggests that the government is truly concerned with a widening wealth gap in the territory, the numbers tell a completely different story. Scrooge would be proud of this budget effort by the world’s highest-paid civil servants and a government executive stuffed with representatives of vast inherited wealth.
Confronted with a surplus of HK$115 billion on a total income of HK$324 billion, the government is to make a number of one-off payments that in theory will leave it with a small deficit in the coming fiscal year, which begins in April. These include an across-the-board payment of HK$8.5 billion into accounts with the Mandatory Provident Fund scheme.
But the real story is in the contrast between the giveaways to the top 20 percent of households, compared with the tiny amounts going to the bottom 50 percent. The main tax cuts – a mix of rebates, revised bands and increased allowances — totaling around $14.5 billion go to those paying salaries tax — less than half the population as the threshold for tax is around the level of the median annual income of $130,000. Most of the tax cut benefit goes to the 400,000 or so taxpayers in the HK$300,000-HK$600,000 bracket.
Meanwhile additional payments to the half of the population below the tax threshold total around HK$5 billion, principally their share of an across-the-board electricity subsidy and one-off extra payments to social security and old age recipients and low-income public housing tenants.
The huge giveaways to the higher income groups are in addition to a previously announced profits tax cut (costing HK$4.4 billion), and property rates reductions mainly benefiting the higher income and commercial sectors costing HK$11.2 billion and other business and profits tax cuts of HK$2.5 billion
While professing to be worried about the impact of inflation — led by food prices — on lower income groups in particular, the government made no commitment to increasing old age and other support on a permanent basis, fobbing off the disadvantaged with a one-off handout. Instead there is yet another sop to the higher income groups in the form of abolition of duty on wine and beer — which largely benefits wine drinkers and is justified on the dubious grounds that it will enable Hong Kong to develop as a wine trading center. (London already is despite high taxes on wine which is consumed domestically)
Nor did the Financial Secretary, John C. Tsang, delivering his first budget since his appointment last year, bother to explain why government spending in the current year continued to fall below budgeted targets despite the return of inflation. It is now projected to fall HK$8 billion short of its original estimate, demonstrating the reluctance of the bureaucracy to spend allocated money.
He chose too to avoid mentioning the fact that the Exchange Fund, administered by the Hong Kong Monetary Authority, had a $109 billion surplus last year even after paying the government a return of HK$27.6 billion, which rightfully belongs to the community. The government gets income on its fiscal reserves but the reserves and profits of the Exchange Fund itself, now worth HK$617 billion, are kept on its own books even though they are public property.
This device conceals the true net worth of Hong Kong people and provides the bureaucracy with a slush fund. (Few details of its investments are available and it recently had to reveal that it had silently become — for reasons not explained — a large shareholder in the company owning the local stock market and futures monopoly, Hong Kong Exchanges and Clearing.)
For the coming year, excluding the one-off payments, spending will barely keep pace with inflation, which is expected to run at 4.5 percent (before taking account of government tax measures which will cut it to 3.4 percent). Vast sums are being allocated for new spending on road infrastructure, despite the impact on an already degraded environment. Meanwhile there is nothing beyond a lower tax rate for ultra-clean Euro V diesel to help clean up a city already suffering devastating health losses, and the growing reluctance of firms to be based here.