South China Serendipity

By Global Tax Weekly

It seems repetitive to keep on congratulating Hong Kong for sticking to its last, and once again insisting that it will not increase taxes; but to do so against all the pressures for more spending that exist in every State implies a very clear commitment to small government and low taxation. Like Singapore, Hong Kong insists that it will not step onto the primrose path of popular appeasement. There are to be no bread and circuses! In limiting itself to a maximum level of public spending of 20 percent, the administration sets its face against increased debt as much as against increased taxes. For comparison, Denmark spends 67 percent of GDP, and even the USA, which is far from the top of the table, spends 43 percent of GDP, according to OECD figures. And it’s not true that Hong Kong has a privileged population: there are just as many poor people, proportionately, as in other, larger countries. For years now the Government has rebated tax bills for poorer people and SMEs out of its annual surplus; there is no sales tax, no inheritance tax, no capital gains tax. Why do the dying economies of Europe not copy Hong Kong and its peers, instead of trying to squeeze the life out of them? No answer comes; but one good answer would be that, by now, they can’t, because of the debt with which they have been saddled by their venal, populist politicians.

For a sad contrast, let’s look at the Netherlands, where the parties are bickering over how to rearrange the deck-chairs on the Titanic. In power, there is one of the deadly left/right coalitions that have infected Europe in recent years (see also Italy and Germany). When neither left nor right can provide the answers, I suppose it makes sense to have both of them. The left wing wants taxes to be “fairer and greener,” which includes extra taxes on wealth. The right wing would like to replace an “entitlement” structure with lower labor taxes across the board. Needless to say, they can’t agree. 52 percent is the proportion of GDP spent by the Government; the top rate of individual tax is the same, 52 percent. Public debt has increased every year since 2008, and is reckoned to reach 73 percent of GDP in 2014. The government’s deficit was 4.5 percent in 2013. Unemployment is about 8.5 percent, while youth unemployment is “only” 13 percent, just about half the EU average. What can they do? The Government, I mean. I know what the citizens can do: leave, or cheat.

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