Recently there have been three important developments in Hong Kong — the financial secretary delivered his budget speech, new data emerged on housing starts in Hong Kong, and a decision was made to leave the Hong Kong minimum wage at HK$37.50 (US$4.83) per hour. It is worthwhile reviewing these developments as they pertain to Hong Kong’s serious and growing inequality problem.

The central government is popular and much of that popularity is due to its success in increasing prosperity at all levels. Only last week, they announced the end of extreme poverty in China for the first time in history.

On the other hand, the Hong Kong SAR government is much less popular and one key reason for that is its lack of success in improving living standards for the poorer half of its people.

The new data on housing starts continues a multiyear trend of inadequate housing development in Hong Kong. The wait for public housing gets longer and longer and private accommodation is unaffordable for the poor, most university graduates and many young professionals. The government’s only answer seems to be its Lantau Tomorrow Vision plan to build housing on artificial islands, which, if it ever happens, will only help many years down the road.

The minimum wage will stay at HK$37.50 for another year. Interestingly, US President Joe Biden is pushing for a US$15 minimum federal wage in the United States, where the cost of living is similar to Hong Kong. HK$37.50 per hour is far below a living wage in Hong Kong, which is at least HK$65 per hour, a fact well known to the government. SMEs understandably oppose an increase in the minimum wage because they already have a high expense base (particularly rent) in Hong Kong. The answer is for a significant government supplement to workers earning below a living wage. However, there is no sign yet that the government is seriously considering such an approach.

To help citizens cope with COVID-19, the government has shown a commendable willingness to resort to budget deficits to reduce the negative impacts of the pandemic. The newly announced spending coupons will be particularly helpful to the poor. The loans to the unemployed is an unusual gambit and it will be interesting to see how many poor people take advantage of this.

The budget speech contained some new approaches but there are few signs that the government is planning to overhaul its financial approach in order to reduce inequality.

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To help citizens cope with COVID-19, the government has shown a commendable willingness to resort to budget deficits to reduce the negative impacts of the pandemic. The newly announced spending coupons will be particularly helpful to the poor. The loans to the unemployed is an unusual gambit and it will be interesting to see how many poor people take advantage of this.

Sadly, nothing announced in the budget will have a lasting effect on inequality in the next few years unless more bold and creative remedial measures are introduced. We need to examine some possibilities.

Is the government prepared to use fiscal means in the future to make a significant reduction in the extreme levels of inequality that exist in Hong Kong? Will the government stand up to the vested interests that have benefited so much from the government’s current approach which clearly favors the elite?

For those of us who believe that the government needs to change, there were some good points in the budget speech. The increase in stamp duty on stock transactions will raise revenue with the burden clearly on the richer members of society. Similarly, poor people do not own cars and they will not be hurt by the increase in tax on car purchases and ownership.

More importantly, the budget speech appears to be showing a willingness to introduce new taxes. The financial secretary talked about “preparation to facilitate in-depth discussions“ about the introduction of new taxes. 

Hong Kong’s financial system depends far too much on income from land sales and other property-related taxes. This dependency has put the government in the position of needing property values to increase more and more in order to balance the budget. This vicious cycle has been a major factor in increasing inequality.

Also, the government’s approach to taxation (generally inherited from colonial times) is extraordinarily generous to the richer members of society. There are many kinds of income that are not taxed in Hong Kong but are taxed in almost all jurisdictions, including the Chinese mainland. We do not tax dividend income. We do not tax interest income. We do not tax capital gains. We do not tax overseas income. We have no inheritance tax. The result is that the richest 10 percent of Hong Kong citizens earn nearly all of their income from areas that are not taxed.

Any suggestions to add taxes in any of these areas will be assaulted by vested interests. They will argue that Hong Kong’s success is largely based on its simple and low tax regime. For them, this is a statement of fact, but it is a statement that needs to be reviewed in the light of inequality

The last time the government seriously looked at broadening the tax base was in 2007. Many new taxes were suggested but all were rejected without much thought. Most of those advising the government, then and now, would lose personally if taxes such as these were introduced. Some of these advisers might look beyond their personal situation but not many have gone public in this regard. How many rich Hongkongers have indicated a willingness to pay more taxes?

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Let’s hope that the current SAR government will do better than they did in 2007. It will take a government that is truly committed to reducing inequality. This will involve using government funds to significantly improve living standards for the poorest 25 percent of society and increasing taxes on the richest 25 percent to assist this process. This can be done without increasing our cherished 15 percent tax cap but simply applying the 15 percent to more income. Note that after such a change, our richest citizens would still be paying far less tax than on the mainland or most other jurisdictions.

The views do not necessarily reflect those of China Daily.

The author is the chairman of the Business and Professionals Federation, a think tank focusing on Hong Kong policy issues. He has lived in Hong Kong for 32 years and is a past chairman of the Employers’ Federation of Hong Kong.