After cracking down on opposition groups in Hong Kong, Chinese leaders plan to attack the city’s huge wealth gap and the lack of affordable housing that Beijing blames for fueling social unrest.
Senior officials are discussing ways to expand the city’s tax structure and increase land supply in an effort to mitigate 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 revisions to Hong Kong’s economic and social welfare systems, although specific proposals have not been put forward, people said.
Changes in Hong Kong’s low tax system would increase revenue for more social spending, but a challenge is how to do this without detracting from the city’s attractiveness as a financial and business center. Land policy reforms can help improve access to cheaper homes, although officials must overcome the entrenched influence of local property tycoons whom Beijing considers to be very passive in supporting government goals.
For Beijing, efforts to contain dissent in Hong Kong last year – from curbing opposition figures on national security charges to a planned overhaul of the city’s electoral system – aim to pave the way for social and economic reforms. Political repression has drawn criticism mainly from Western governments, who have accused China of violating its promises to allow Hong Kong’s governance to remain semi-autonomous until at least 2047.
China’s grip on Hong Kong
What Beijing ultimately wants to address in Hong Kong “is not politics, but the deep issues”, including the city’s lack of affordable housing and the city’s “deeply polarized income disparities,” said Bernard Chan, a member of the country’s national legislature. China and Hong Kong’s Office.
Chinese Vice Premier Han Zheng and other senior officials told pro-Beijing politicians in Hong Kong that local officials must resolve fundamental social issues that they believe have generated 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 internal struggles that plague Hong Kong’s political and business elite, even if those that the Communist Party defines as “true patriots” are put in charge.
“These patriots are probably also people with private interests. They don’t know the problems of the poor, ”said Emily Lau, a former president 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 resolve them,” said Lau. “What makes you think they are going to fix this now?”
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Chinese officials have signaled confidence that dealing with Hong Kong’s structural issues will be easier with loyal members firmly in charge. This is despite the failures of successive Beijing-anointed leaders in Hong Kong to remedy such problems since Britain returned the city to China in 1997.
According to the new Beijing approach, if those who govern Hong Kong “cannot serve the people well, they must resign,” wrote Tian Feilong, a Beijing professor and member of a government-backed Hong Kong policy study group Chinese. month.
The Hong Kong government declined to comment on whether policy reform discussions were ongoing.
Beijing telegraphed concern over social inequalities last year, when Luo Huining, director of the central government liaison office in the territory, visited the home of an unemployed worker during the Mid-Autumn Festival and said he deeply regretted living conditions there .
The Hong Kong Gini coefficient, a measure of income inequality on a scale of zero to one, where zero represents complete equality, is among the highest in the developed world, rising to 0.539 in 2016 from 0.518 in 1996, according to government data. The city was ranked as the world’s least accessible housing market in an annual international housing accessibility study by the 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, imposes no tax on sales, consumption, capital gains, dividends or inheritance. About half of Hong Kong’s workforce pays no taxes, and the maximum rate of payroll taxes is 17%, according to government data.
Options to make the tax system more equitable or to finance more social welfare may involve reshaping the way personal income is taxed, said Michael Littlewood, a law professor at the University of Auckland who has written a book on Hong’s tax system. Kong. For example, existing tax categories – which cover wages, commercial profits and property – can be reworked to create a broader system that taxes individuals’ overall income.
If the authorities are more concerned with financing higher social expenditures, they can increase revenues significantly by imposing a tax on goods and services, but this measure would be regressive and unpopular, since low-income families devote a larger share of income to consumption, Mr. Littlewood said. In 2006, the authorities abandoned plans for this tax amid public opposition.
In February, Hong Kong revealed its first stamp duty increase on stock trading since 1993. The increase in trade tax, from 0.1% to 0.13%, was intended to boost government spending to help residents to resist the pandemic, but stimulated a sale in the local market.
Hong Kong has kept its tax system low thanks in large part to its land policies, another legacy of British rule, which has long been criticized for artificially inflating property prices that increase government coffers and the profits of developers. Real estate experts say this system effectively imposes parallel taxes on residents through sky-rocketing prices and rents.
From 2004 to 2019, property prices in Hong Kong fell 4.5 percentage points to just under 50% – well below the levels of other affluent economies – while apartment prices nearly quadrupled, according to an article published this month. by the research office of the Hong Kong legislature. Younger residents are “out of the market, as their labor income falls well short of rising asset prices,” the report said.
Among the ideas being considered by Beijing are accelerating government processes for land rezoning and project approval, according to people familiar with the discussions.
Li Shan, a veteran banker and member of a Chinese government advisory body, said at a policy forum in December that he submitted a proposal to Hong Kong authorities on ways to deal with housing issues, including establishing a public-private partnership. to build new houses.
“The Hong Kong housing crisis is a political problem, not a land shortage,” the Hong Kong Real Estate Developers Association said in a 2020 report, which cited regulatory congestion as a major problem. He proposed to simplify and streamline the processes of land rezoning, among other suggestions.
These changes could cause the authorities to confront the city’s influential real estate tycoons, who exert a tremendous influence on land policy.
“Local tycoons need to think from the big picture,” said a government official familiar with the political discussions. “Your interests will certainly be harmed to some extent, but the government does not want to eliminate them.”
Write to Keith Zhai at [email protected] and Chun Han Wong at [email protected]
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