Hong Kong must reconsider a broader tax base for fiscal stability

Among the numbers and spending programmes of many Hong Kong budgets over the past decade and a half has been mention of a need to broaden the government's revenue base, perhaps through a goods and services tax. Financial Secretary John Tsang Chun-wah predictably raised the matter again this year, tucking it into the last one-sixth of his speech. Making reference is seemingly obligatory, being prefaced in terms of future necessity, not urgency. Yet given our fast-ageing population and the unpredictable nature of revenue streams, addressing the structural shortcomings of the taxation system should be given greater prominence.

Tsang unveiled a savings fund that aims to help our city through lean times that are predicted with the emergence of a structural deficit in 10 years. That seems hard to envisage given the huge budget surpluses of late. But as the finance chief has been warning, such largesse cannot be counted on to continue indefinitely, especially with a shrinking workforce. The government found out the latter point to its detriment after the Asian economic crisis in 1997 and when Sars struck in 2003.

During those times, confidence in Hong Kong slipped and property sales were down dramatically. The narrowness of the tax base - the bulk comes from corporate profits, property and personal income - makes revenue prone to the uncertainties of the economy. Land sales accounted for 14.7 per cent of income last year, a figure that swings in line with the economic climate. The uncertainties and uneven spread of taxation have to be lessened so that there can be more reliable and sustainable streams of revenue.

A GST would provide that. The International Monetary Fund has long recommended the measure, as have reports commissioned by consultants. Former chief executive Donald Tsang Yam-kuen's government went so far as to put the idea to a public consultation in 2006, but it was cut short and then shelved due to concerns about its unpopularity. There will always be opposition to such a proposal, in part because no one wants to pay more for what they buy and use, but also due to the high cost of compliance. Small- and medium-sized firms would have to deal with large amounts of paperwork.

Those are nonetheless small prices to pay for the added certainty a GST would bring. Hong Kong cannot continue to overly rely on a scant few revenue areas given the challenges ahead. At the least, there has to be renewed debate.