Hong Kong approaches land-value tax ideal
Hong Kong to Hand Out Cash, Tax Rebates
| Two geonomic cities share the surplus wealth while the world’s major business paper reports on the reform. We trim, blend, and append three 2011 articles on Hong Kong from: (1) Bloomberg, Mar 1, on disbursing surplus by Sophie Leung; (2) Reuters, Mar 7, on protests; and (3) The Financial Times, Mar 14, on self-financing by Nicholas D. Rosen (Arlington, VA, US). |
by Sophie Leung, by Reuters, and by Nicholas Rosen
- Hong Kong to Hand Out Cash, Tax Rebates
Hong Kong’s financial secretary caved in to protests over plans to bolster residents’ pension funds, opting to hand out cash and tax rebates that a week ago he said would stoke inflation.
John Tsang said he will give HK$6,000 ($770) to permanent residents aged 18 or above, abandoning a Feb. 23 budget plan to inject the same amount into their pension fund accounts after polls showed the government’s popularity slumped. The government also plans to give the 38 percent of the workforce that pays income tax a 75 percent rebate capped at HK$6,000.
Political parties attacked Tsang for failing to do enough to alleviate the impact of soaring food and housing costs. Asian governments are grappling with inflation fueled by capital flows from developed economies drawn by the region’s faster economic growth.
The chief executive, the highest-ranked official in the Chinese semi-autonomous city, was yesterday assaulted at a public event by protesters who said he was ignoring the plight of the poor. Tsang has come under pressure from top leaders in Beijing over social discontent in Hong Kong.
Premier Wen Jiabao told him to address “deep-rooted contradictions” in society in December 2009. A year later, he told Tsang to improve living standards in the city.
The number of Hong Kong’s 7 million people living in poverty rose to a record 1.26 million in the first half of 2010, from 1.2 million the prior year. The wealth of Hong Kong’s 40 richest people grew 20 percent to $163 billion from $135 billion in 2010.
Under the plan announced today, handouts will also benefit about 6 million residents, including housewives, retirees, and other residents who don’t have a mandatory pension fund account.
The fiscal reserve will probably rise this financial year to HK$591.6 billion, or 34 percent of gross domestic product, the financial secretary said. The government will likely have a surplus of HK$71.3 billion by the end of March.
The Singapore government said last month it will give S$1.55 billion ($1.22 billion) in cash to all adult citizens as a “dividend” from record growth.
Singapore’s GDP expanded 12 percent from a year earlier in the most recent quarter, compared with 2.7 percent growth in the United States. Hong Kong’s GDP grew by 6.2 percent in the fourth quarter from a year earlier.
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JJS: Hong Kong and Singapore, former British colonies with a history of recovering the socially-generated value of land, are the two most orderly (usually), prosperous, and geonomic jurisdictions on the planet. Yet even they don’t recover all, or even most, of land’s annual rental value. Without their “land dues” (e.g., land taxes) set at full-market value, those handouts -- charitable as they may be to the poor and people on fixed income -- will let landlords and landowners and land sellers raise what they charge and thus fuel inflation.
To make those handouts leave prices alone, those cities have to increase their land dues in order to keep landlords, landowners, and land sellers in competition among themselves, which will force them to keep down, maybe even lower, what they charge.
As the value of locations rises not from speculation or excess cash but from population pressures and technological progress, and with the land dues in place, then higher site values will merely fatten the residential dividend -- good news for everyone. People would have little or nothing to grumble about.
- 113 held after Hong Kong protest
Hong Kong police arrested 113 protesters after an anti-budget demonstration late yesterday, as the government came under increasing pressure from activists who criticized authorities for not doing enough to help the poor.
Organizers of the anti-budget protest said over 10,000 people took part, but police put the figure at around 6,000.
The protesters took to the streets despite a revised government plan last week to grant HK$6,000 ($771) to each Hong Hong permanent resident.
Hong Kong announced a bumper surplus of HK$71.3 billion ($9.15 billion) for the 2010/11 financial year.
Police said in a statement today the protesters were arrested after they blocked roads in the city's downtown financial district and confronted police.
Police said they were forced to use pepper spray on groups of activists after repeated calls for them to disperse peacefully and to maintain public order amid heated scenes and chants for the city's financial secretary to resign.
Among those arrested were two boys aged 12 and 13, while several people were injured in the standoff including an eight-year-old boy who was caught by the pepper spray.
Many of those arrested were youngsters linked to the radical pro-democracy political party, the League of Social Democrats, whose members include activist lawmaker Leung Kwok-hung.
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JJS: Seems a half loaf won’t satisfy the people of Hong Kong -- they demand the full measure of their rights. Let’s hope their fervor is matched by logical analysis. If all members of society were to receive a share of ground rent and of all other rents, then nobody would be poor (all would receive the dividend) and nobody would be too rich (all would pay land dues set according to the value of their location), and the income and wealth gaps would be closed to justifiable widths.
Even the major press tells part of the story of the success of Hong Kong.
- HK approaches land value tax ideal
Nicholas Rosen: David Pilling is critical of Hong Kong’s land leasing system (“Hong Kong’s land system that time forgot”, Comment, March 10). While there may be room for greater transparency and other improvement, I submit that the fundamental idea is sound. Government should be financed from land rents.
Mr Pilling writes, for example: “By this means, Hong Kong has conjured a cheap and gleaming transport system seemingly out of nothing.” Precisely. A transport system makes land more valuable so, if it is worth building, it can and should be paid for out of the increased land rents it creates.
If “Hemlock” compares Hong Kong’s property tycoons to “feudal lords granted the right to gather tax from the peasants”, their equivalents in New York and London can be called feudal lords collecting tax from the peasants without even having to forward much of their revenue to the sovereign, who must therefore levy other taxes on the peasants.
A classic statement of the case for land value taxation is -- instead of paying rent to a landlord and tax to the state, why not pay rent to the state, and no taxes? Hong Kong comes closer to this ideal than most places.
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Editor Jeffery J. Smith runs the Forum on Geonomics.
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Also see: China's frothy property market falters in June
Most Chinese kept from good wages & affordable homes
MRT network driving up land value |
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