After destroying opposition groups in Hong Kong, Chinese leaders plan to tackle the city’s yawning wealth gap and lack of affordable housing that Beijing blames for fueling social unrest.
Senior officials are discussing ways to broaden the city’s tax structure and increase the land supply in an effort to reduce inequality and the high cost of living in one of the world’s most expensive cities, people familiar with the discussions said. The deliberations could lead to sweeping reforms of Hong Kong’s economic and social systems, although no specific proposals have been made, the people said.
Changes to Hong Kong’s low tax system would generate income for more social spending, but a challenge is how to do this without undermining the city’s attractiveness as a financial and business center. Land policy reforms may help improve access to cheaper housing, although officials must overcome the entrenched influence of local real estate magnates who consider Beijing too passive in their support of the government’s goals.
For Beijing, efforts to curb disagreements in Hong Kong over the past year – from collecting opposition figures on national security charges to a planned overhaul of the city’s electoral system – are meant to pave the way for social and economic revisions. The political crackdown has mainly fired on Western governments, which accused China of breaking its promises to keep Hong Kong’s administration semi-autonomous until at least 2047.
China’s Hold on Hong Kong
Ultimately, what Beijing wants to tackle in Hong Kong is “not politics, but deep-seated problems,” including the lack of affordable housing and the city’s “highly polarizing income gaps,” said Bernard Chan, a member of the national legislature. China and Hong Kong’s Cabinet.
Chinese Deputy Prime Minister Han Zheng and other senior officials have told pro-Beijing politicians from Hong Kong that local authorities need to resolve basic social issues that they believe have caused political unrest in recent years, Mr Chan said. “They want us to fix it,” he said.
Opposition politicians are skeptical that Beijing can overcome the decades of political inertia and power struggles that plague Hong Kong’s political and business elite, even if those the Communist Party describes as “true patriots” take the lead.
“These patriots are probably also people with vested interests. They don’t know the problems of the poor, ”said Emily Lau, a former chair of the Hong Kong Democratic Party who was a local legislator for a quarter of a century.
Beijing has long been aware of Hong Kong’s social inequalities, but “They never bothered to fix it,” Ms. Lau said. “Why do you think they will fix it now?”
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Chinese officials have expressed confidence that it will be easier to tackle Hong Kong’s structural problems if loyalists are firmly in control. That’s despite the failure of successive Beijing-anointed leaders in Hong Kong to resolve such issues since Britain returned the city to China in 1997.
According to Beijing’s new approach, if those who rule Hong Kong “cannot serve the people well, they must resign,” Tian Feilong, a Beijing-based professor and member of a Chinese government-sponsored think tank wrote on Hong Kong’s policy. Kong. month.
The Hong Kong government declined to comment on whether discussions on policy reform were underway.
Beijing wired concerns about social inequalities last year when Luo Huining, director of the central government liaison office in the area, visited the home of an unemployed worker during the Mid-Autumn Festival and said he felt sorry for the living conditions there.
Hong Kong’s Gini coefficient, a measure of income inequality scaled from zero to one, where zero stands for complete equality, is among the highest in the developed world and, according to government data, is rising to 0.539 in 2016 from 0.518 in 1996. The city is Ranked as the world’s least affordable housing market in an annual international housing affordability survey by US research firm Demographia for 11 consecutive years since 2011, when Hong Kong was first included in the analysis.
Hong Kong’s low tax regime, largely unchanged since British rule, does not impose taxes on sales, consumption, capital gains, dividends or inheritance. According to government data, about half of the workforce in Hong Kong does not pay tax and the highest payroll tax rate is 17%.
Options to make the tax system more equitable or to fund more social benefits could include overhauling how personal income is taxed, said Michael Littlewood, a law professor at the University of Auckland who wrote a book on the tax system of Auckland. Hong-Kong. For example, existing tax categories – pertaining to salaries, corporate profits and property – can be revised to create a broader system that taxes the total income of individuals.
If civil servants were more concerned with financing higher social expenditures, they could significantly increase revenues by imposing a tax on goods and services, but this measure would be regressive and unpopular as lower income households have a higher share of the spend income on consumption. Littlewood said. In 2006, the authorities dropped plans for such a tax amid public opposition.
In February, Hong Kong unveiled its first increase in stamp duty on stock trading since 1993. The increase in the trade tax, from 0.1% to 0.13%, was intended to support government spending to help residents weather the pandemic. but caused a sell-out in the local market. .
Hong Kong has maintained its low-tax system, largely thanks to its land policy, another legacy of British rule, which has long been criticized for artificially inflating property prices that boost government treasury and developers’ profits. Real estate experts say this system effectively imposes shadow taxes on residents through skyrocketing house prices and rent.
From 2004 to 2019, home ownership in Hong Kong fell 4.5 percentage points to just under 50% – well below levels in other prosperous economies – while apartment prices nearly quadrupled, according to a paper published this month by the research firm of the Hong Kong Legislature. . Younger residents are being “priced out of the market because their labor income falls far short of escalating asset prices,” he said.
One of the ideas being considered by Beijing is to speed up government processes for rezoning land and approving projects, the people familiar with the discussions said.
Li Shan, an experienced banker and member of a Chinese government advisory board, told a policy forum in December that he has submitted a proposal to Hong Kong authorities on ways to address housing issues, including establishing a public-private partnership to build new houses. .
“The Hong Kong housing crisis is a policy issue and not a shortage of land,” the Real Estate Developers Association of Hong Kong said in a 2020 report that identified regulatory issues as a major issue. Among other things, it proposed to simplify and speed up land re-use processes.
Such changes could lead officials to compete with the city’s influential real estate magnates, who have wielded great influence over land policy.
“The local tycoons have to think from the general picture,” said a government official familiar with the policy discussions. “Their interests will certainly be harmed to some extent, but the government does not want to take them out.”
Write to Keith Zhai at [email protected] and Chun Han Wong at [email protected]
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