Tax cut : A sure win election plank

(Next Magazine, 2015/9/17, A002, Second Opinion, Andrew Work)

Tax cut : A sure win election plank

A day doesn’t go by without speculation about who is giving the green light for various pro-establishment players to either lambaste Mr. CY Leung, the Chief Executive, or speculate about his replacement. Whether it is a Xi vs. Jiang proxy war playing out in Hong Kong or a question of 分而治之 (divide and rule), clearly some dogs have been let off the leash. If Mr. Leung is to consolidate his standing for the next CE “election”, he needs to add a strong policy pillar that delivers economic and political results before 2017. He has staked a claim to home-building to relieve real estate pressures, but that will only credit his legacy if its effects are felt during his uncertain second term.

One idea never goes out of style – and can help him now.The Hong Kong Tax Institute, commentator Mark Simon, and, last year, Financial Secretary John Tsang, have all seen the benefits of middle-class tax cuts. There is no reason to discontinue tax cuts this year; all the same pressures and opportunities in force over the past two years are all in play now.The government has another surplus in hand and can safely raise the tax brackets for exemptions at the bottom end of our progressive tax scale. Raising exemptions takes people at the bottom of the income scale off the tax rolls and, ideally, the tax reporting line of fire. It would also reduce taxes for the middle class.Reducing the tax burden on the poor, defined as those at the bottom of the taxable income brackets, is always a great way to help that leaves the poor more in charge of their lives. For the middle class, definition is problematic in Hong Kong. Asset inflation means that those with inherited property and modest incomes may have seen their net worth jump dramatically during our asset inflation run of recent years.

I once defined middle class as anyone paying rent – neither asset nor income rich, but not so poor as to qualify for public housing. However defined, the middle class has been hammered by food inflation, belted by rocketing education costs and slammed by rental increases. Most despair of ever achieving home ownership.All of these pressures could be relieved by extra money in the pockets of the beleaguered middle class to distribute according to their priorities. Some may be willing to bite the property bullet to shell out for education; others may prefer to save for future home ownership – here or abroad.Over the past few years, tax exemptions for parents, per child, have been raised to good effect. Whether buying more nutritious food, springing for extra-curricular activities or just keeping up with tuition raises, parents deserve to keep their hard-earned wages to support their children’s growth.Tax cuts are a great political move as well. There is no political reason for Beijing to oppose such a popular measure – it’s politically neutral and just doesn’t fit into their calculations. There’s one of the two camps covered. The other camp, the Hong Kong people, and the multitude of special interest groups here, have no cause to oppose these cuts as long as Hong Kong is running surpluses.

Combined with last year’s cuts, two more years of reducing taxes for the lower and middle income brackets, above and beyond keeping up with inflation, would help the CE going into a hotly contested CE “election”.While tax cuts are, strictly speaking, the preserve of the Financial Secretary, the CE can nevertheless claim a broad reduction of taxes as a success that he could continue into a second administration. A competitor would be wise to make it part of an electoral platform; Mr. Leung could make it part of his proven track record.We can afford the tax cut. It is the right thing to do and wildly popular – a rare conjunction in politics. Whoever is running to be the next CE should embrace it.

Andrew Work

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