Following the destruction of opposition groups in Hong Kong, China’s leaders plan to address the city’s gaping wealth gap and the lack of affordable housing that Beijing blames for inciting social unrest.
Senior officials are discussing ways to broaden the city’s tax structure and increase land supplies in an effort to reduce inequality and high living costs in one of the most expensive cities in the world, according to people familiar with the discussions. The deliberations could lead to far-reaching reform of Hong Kong’s economic and social welfare systems, although specific proposals have not been put forward, the people said.
Changes to Hong Kong’s low-tax system will generate revenue for more social spending, but one challenge is how to do so without undermining the city’s attractiveness as a financial and business hub. Land policy reforms can help improve access to cheaper housing, although officials need to overcome the entrenched influence of local realtors who see Beijing as too passive.
For Beijing, efforts to curb unrest in Hong Kong over the past year – from compiling opposition figures on national security funds to a planned overhaul of the city’s electoral system – are paving the way for social and economic overhaul. The political repression mainly detracted from Western governments, which accused China of violating its promises to allow the Hong Kong government until at least 2047 to retain government.
China’s grip on Hong Kong
What Beijing ultimately wants to address in Hong Kong is ‘not the politics, but the deep-seated issues’, including the lack of affordable housing and the city’s ‘deeply polarizing income gaps’, said Bernard Chan, a member of China’s national legislature and Hong Kong said. King’s cabinet.
Han Zheng, Chinese deputy prime minister, and other senior officials told Hong Kong pro-Beijing politicians that local authorities need to resolve fundamental social issues that they say have sparked political unrest in recent years. Chan said. “They want us to fix it,” he said.
Opposition politicians are skeptical that Beijing can overcome the decades of political inertia and fighting that Hong Kong’s political and business elite are experiencing, even if Communist Party leaders are described as ‘true patriots’.
‘These patriots are probably also people with vested interests. They do not know the problems of the poor, ‘said Emily Lau, a former chairman of Hong Kong’s Democratic Party, who was a local lawmaker for a quarter of a century.
Beijing has long been aware of the social inequalities in Hong Kong, but “they never made the effort to resolve them,” she said. Lau said. “What makes you think they’ll fix it now?”
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Chinese officials have expressed confidence that tackling Hong Kong’s structural issues will be easier with loyalists in power. This is despite the failures of successive Beijing-anointed leaders in Hong Kong to rectify such problems since Britain returned the city to China in 1997.
According to Beijing’s new approach, if those who govern Hong Kong “can not serve the people well, they should retire,” said Tian Feilong, a professor in Beijing and a member of a Chinese government support tank on Hong Kong policy. it was written month.
The Hong Kong government declined to comment on the discussion of policy reforms.
Beijing telegraphed concerns about social inequality 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 was deeply sorry about the living conditions there.
The Gini coefficient in Hong Kong, a measure of income equality scaled from zero to one, where zero represents complete equality, is among the highest in the developed world and rises to 0.539 in 2016 from 0.518 in 1996, according to government data. Since 2011, when Hong Kong was first included in the analysis, the city has been awarded the world’s cheapest housing market for 11 consecutive years in an annual international affordability study by the American research firm Demographia.
Hong Kong’s low tax regime, which has remained largely unchanged since British rule, does not impose any duties on sales, consumption, capital gains, dividends or inheritance. About half of the workforce in Hong Kong does not pay taxes, and the highest salary tax rate is 17%, according to government data.
Options to make the tax system fairer or to fund more social welfare could involve improving the tax on personal income, says Michael Littlewood, a law professor at the University of Auckland, who wrote a book on Hong Kong’s tax system. Existing tax categories – which cover salaries, business profits and property – can, for example, be revamped to create a broader system that taxes individuals’ total income.
If officials are more concerned about financing higher social spending, they can significantly increase income by imposing taxes on goods and services, but this measure will be regressive and unpopular because lower-income households make up a larger share of the income spent on consumption, Mr. Littlewood said. In 2006, authorities dropped plans for such a tax amid public opposition.
In February, Hong Kong announced its first increase in the stamp duty on shares since 1993. The increase in the trade tax, to 0.13% from 0.1%, was intended to suppress government spending to help residents withstand the pandemic, but spurred a local market sale. .
Hong Kong has maintained its low tax system thanks to land policy, another legacy of British rule, which has long been criticized for artificially raising real estate prices that increase government coffers and the profits of developers. Real estate experts say that this system effectively imposes shadow tax on residents through sky-high house prices and rents.
From 2004 to 2019, homeownership rates in Hong Kong fell by 4.5 percentage points to just under 50% —well below levels in other prosperous economies — while apartment prices rose nearly fourfold, according to an article by the legislature’s research office this month. Hong Kong has been published. . Younger residents are being “priced out of the market as their earned income lags far behind in the rise in asset prices,” he said.
According to the ideas that Beijing is considering, the acceleration of government processes for land rezoning and the approval of projects, according to the people familiar with the discussions.
Li Shan, a veteran banker and member of an advisory body to the Chinese government, said at a policy forum in December that he had submitted a proposal to the Hong Kong authorities on ways to address housing issues, including the establishment of ‘ a public-private partnership to build new homes. .
“The housing crisis in Hong Kong is a problem of policy and not a shortage of land,” the Hong Kong Fixed Developers Association said in a 2020 report, in which regulatory problems are a major problem. Among other things, it has been proposed that processes for the rezoning of land be simplified and expedited.
Such changes could take the city officials to the influential property conditions, which exert excessive influence on land policy.
“The local authorities need to think from the big 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 eliminate it.”
Write to Keith Zhai at [email protected] and Chun Han Wong at [email protected]
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