(Next Magazine, 2016/2/11, A002, Second Opinion, Bill Stacey)
Safeguard our freedom
The Heritage Foundation just named Hong Kong, for the 22nd consecutive year, the freest economy in the world. Some people are mystified by this singular recognition. They see instead creeping government intervention, rising vested interests and half the population in public housing, and question whether this is the fabled market driven paradise of yore.
The answer to sceptics is that for all the problems that we have, we remain one of the best places in the world to do business. Dozens every month from around the world come to establish businesses here. It is vital that we understand what makes us an attractive place to do business, so that we don’t squander that edge.What attracts so many businesses to our shores? Crucial are our endowment of a spectacular location, central to some of the fastest growing and most developed countries of the world and a people that are hard-working and enterprising. Hopefully these cannot easily be lost.Other attractions seem more fragile. We are incredibly efficient compared to many cities. Services are delivered on time, vendors are nearby, and all the services needed to run a business are easily available at a low cost. Transport is a breeze. Personal safety has been better than many western cities. The internet is open and fast.Company formation is easy, fast and inexpensive. Company reporting obligations are straight forward. The network of accountants, company secretaries and lawyers is extensive and caters to people from all over the world. So getting a start in a business is not hard.Hiring people to staff the business is governed by simpler laws than most other places. If you make a hiring mistake or if a business does not work out, obligations to employees are contractual and enforced, but not onerous. This helps to hire more people and create opportunities. Immigration has been pragmatic if you want to hire the best talent in the world, but is becoming harder.
Office space was once a problem, but burgeoning shared co-working office space and serviced offices offer many flexible and more cost effective options.If a business attracts customers, costs are kept competitive by our free port that levies no tariffs at all and no goods and services tax. The absence of these imposts not only saves money, but also pares bureaucratic hindrance so businessmen can focus on customers and the bottom line.If you own a business, low tax allows you to keep precious cash flow, reinvest in your business and have confidence that if you do prosper, you can keep the proceeds. This process of reinvesting capital creates businesses that employ more complex processes, adding to productivity and creating an edge. Ours is not just a low tax rate, we have few tax incentives that cause distortions.
Absence of capital gains taxes is also vital for capital accumulation that makes us such an attractive place to do business. This is no tax haven advantage, it leads to real investment and reinvestment of gains in Hong Kong. Now that death duties have been eliminated, there is just one less reason to engage in elaborate tax driven structuring, further simplifying doing business here.The rule of law abides in contracts and regulatory processes. The currency regime is stable.Problems are emerging. The MPF and minimium wage are administrative nightmares that do no good for employees. Whilst banking was first rate in Hong Kong, now even opening a bank account can be very difficult. Regulated industries like food and beverage or financial services have huge barriers to entry. Competition law, perversely, disadvantages small businesses.If we are to remain a shining light where people are free to be enterprising and creative, we must do all we can to preserve freedom, keep taxes low, regulation simple, government meddling absent and the rule of law intact. We will all be poorer if the cynics are proven right.