After ousting opposition groups in Hong Kong, Chinese leaders plan to address the city’s wealth boom and lack of affordable housing, which 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 world’s most expensive cities, according to familiar people with the discussions. The deliberations could lead to profound reforms of Hong Kong’s economic and social welfare systems, although no specific proposals have been put forward, people said.
Changes to Hong Kong’s low-tax system would increase 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. Agrarian policy reforms can help improve access to cheaper housing, although officials must overcome the ingrained influence of local property tycoons, whom Beijing considers too passive in its support of government goals.
For Beijing, efforts to curb dissent in Hong Kong over the past year, from gathering opposition figures on national security charges to a planned renewal of the city’s electoral system, aim to pave the way for social and economic reviews. Political repression has mainly resulted in Western governments, which accused China of violating its commitments to allow Hong Kong’s governance to remain semi-autonomous until at least 2047.
Influenza from China to Hong Kong
What Beijing ultimately wants to address in Hong Kong is not “politics, but deep issues,” including the city’s lack of affordable housing and “profoundly polarizing income shortages,” said member Bernard Chan of the Chinese National Legislature and Hong Kong’s Cabinet.
Chinese Vice Premier Han Zheng and other senior officials have told Hong Kong’s pro-Beijing politicians that local authorities must address the fundamental social problems that they say have spurred political unrest in recent years, he said. Chan. “They want us to fix it,” he said.
Opposition politicians are skeptical that Beijing can overcome the decades of political inertia and fights that plague Hong Kong’s political and business elite, even if it puts itself at the forefront of what the Communist Party defines as “True patriots.”
“These patriots are probably also people with vested interests. They don’t know the problems of the poor, ”said Emily Lau, a former chairwoman of the Hong Kong Democratic Party who was a local legislator for a quarter of a century.
Beijing has been aware of Hong Kong’s social inequalities for a long time, but “they never bothered to address it,” Ms. Lau. “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 firmly in charge. This is despite the failures of successive anointed leaders in Beijing to Hong Kong to solve these problems since Britain returned the city to China in 1997.
According to Beijing’s new approach, if those who govern Hong Kong “can’t serve the people well, they should leave office,” wrote Tian Feilong, a Beijing-based professor and member of a Hong Kong policy think tank. Kong supported by the Chinese government. month.
The Hong Kong government declined to comment on whether there were discussions on political reforms.
Beijing telegraphed concern over social inequalities last year, when Luo Huining, director of the central government’s liaison office in the territory, visited the home of an unemployed worker during the Mid-Autumn Festival and he said he was very sorry for the living conditions there were.
Hong Kong’s Gini coefficient, a measure of income inequality escalating from zero to one, whereby zero represents complete equality, ranks among the highest in the developed world, rising to 0.539 in 2016 from 0.518 in 1996, according to government data. The city has been ranked as the world’s least affordable housing market in an annual international housing supply study by U.S.-based 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 from the British government, does not impose any tax on sales, consumption, capital gains, dividends or inheritance. About half of Hong Kong’s workforce does not pay taxes and the highest rate of wages is 17%, according to government data.
Options for making the tax system more equitable or funding more social welfare could involve renewing the way personal income is taxed, said Michael Littlewood, a law professor at the University of Auckland who wrote a book on the tax system. Hong Kong. For example, existing tax categories — which cover wages, business profits, and real estate — could be renewed to create a broader system that taxes people’s global incomes.
If officials were more concerned about funding higher social spending, they could increase income significantly by imposing a tax on goods and services, but this measure would be regressive and unpopular, as lower-income households spend a larger share of their income. to consumption, according to Mr. Littlewood said. In 2006, the authorities withdrew plans for this tax amid public opposition.
In February, Hong Kong introduced its first increase in stamp duty in share transactions since 1993. The increase in trade tax, from 0.1% to 0.13%, had as its aimed to bolster government spending to help residents overcome the pandemic, but boosted local market sales.
Hong Kong has kept its tax system low thanks in large part to its land policies, another legacy of British rule, which have long been criticized for artificially inflating rising property prices. benefits of government coffers and developers. Property experts say that this system effectively imposes shady taxes on residents through high housing and rental prices.
From 2004 to 2019, property rates in Hong Kong fell 4.5 percentage points to just under 50% – well below levels in other affluent economies – while apartment prices multiplied. for four, according to a document released this month by the Hong Kong legislature’s research office. . Younger residents have a “price out of the market, as their labor income falls far behind the escalation of asset prices,” he said.
Among the ideas Beijing is considering is accelerating government processes for land reparcelling and project approval, according to people familiar with the discussions.
Li Shan, a veteran banker and member of a Chinese government advisory body, told a policy forum in December that he had submitted a proposal to Hong Kong authorities on ways to address housing issues, including creation of a public-private partnership to build new houses.
“Hong Kong’s housing crisis is a policy issue and not a land shortage,” the Hong Kong Real Estate Developers Association said in a 2020 report, which cited regulatory logjams as a major problem. He proposed simplifying and streamlining land reparcelling processes, among other suggestions.
These changes could lead officials to take influential city-owned tycoons, who have exerted excessive influence on land policy.
“Local tycoons have to think from the big picture,” said a government official familiar with the discussions on the policy. “Their interests will 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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