The GST Once Again

The proposed GST is still in the news here. It looks to me as though the government is going to implement some form of this even if it has to do it over the dead bodies of most of citizenry of Hong Kong.

I have spent considerable time wondering "Why the big push for this when there are other options available?" I'd put it down to the normal pig headed stubbornness that I often see here. When Hong Konger's get an idea about something they often seem to be unable to let it go. I think it has something to do with the vomitoria style of education here. They are used to memorizing one answer for any problem and then vomiting it back to the teacher when demanded. I think that form of education, especially when taken to the extreme that Hong Kong government schools take it, results in people who know lots of facts but cannot creatively solve problems. However, in this case, I'm not so sure about that anymore.

I think I may have to give Henry Tang some credit. He seems to have actually risen all the way up to the level of low cunning. I have speculated before that the real reason for this tax is not to simply "Broaden the tax base" but to broaden the government. I think, I have some indirect proof of that. Here is a link to an article from the investment firm of Price,Waterhouse and Cooper.

It has some rather unusual statistics about Hong Kong.

Apparently, one of the goals of the Hong Kong Government is to bring the cost of government down to below 20% of the GDP by 2008. What the article does not tell me is how far above 20% the percentage of the GDP the government take currently is. That 20% figure seemed high to me so being a librarian after all, I looked it up. My intuition was, both wrong and right.

If you look at over all percentage of government expenditures as a portion of GDP you find that the nations on the table spend from about 35% to nearly 60% of the GDP on government. So on the surface, Hong Kong would look to be at the low end of the scale. However, you have to throw out the nations with highly socialistic economies like the Sandinavian countries because their economic structure is very different from Hong Kong.

If you look at the more market oriented nations you'll find that they normally spend about 1/3 to about 1/2 of the GDP on government. However, all of the other nations listed have to also spend money on things that Hong Kong doesn't. For example, when I was an undergraduate, the number 17% was often cited as the amount of the US budget devoted to defense. Well, if you take the 35% or so of GDP the US spends on government and subtract 17% you end up with 18%. If Hong Kong, a market economy is spending over 20% of its GDP on government then as a percentage it is spending somewhere between 2% and 11% more of it's GDP on government without funding an army or navy or a foreign service that mans embassies and consulates. That is assuming that the government currently spends no more than 29% of the GDP on government which is what the article implies to me.

So, what does this have to do with Henry Tang rising above his education?

It appears to me that Henry sees that the government cannot meet its goal of reducing the percentage of the GDP used by government to less than 20%. Especially since most of the HK baboons (My term for the Hong Kong Civil Service) were trained Europe they would look not at the US but at Europe with slower growth, higher taxes and less freedom as their model rather than the traditionally lower tax, higher growth and more personal freedom model that the people here are used to.

In short, I don't think Henry Tang believes the government can reduce its cost to less than 20% of the GDP because countries like France, and the UK and Germany are, after subtracting their military and diplomatic budgets, higher than that, but can't say so because of the political problems it would cost. He wants to keep his job.

He is trying to find a way to increase the governments revenue to, at least in part, cover the bloated salaries that government officials are paid because he knows very well that those salaries are one of the first things that the local population will call for cutting rather than raising taxes.

A GST is a good way to do that because it is a hidden tax. People pay it a little at a time. They get used to it after a while. So why should Henry cut his salary or forgo hiring 50 more cronies at the ministerial level? Why not raise taxes?

Or, it could be that Henry is thinking like a European socialist. He may believe that the road to freedom is to tax the population into prosperity.

Or maybe He thinks his astronomical salary of over USD $45,000.00 per month is justified because he is so much more competant than the average Zhou.

Or maybe, it is just low cuning

Until Next Time
Fai Mao
The Libertine Blogger