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Opinion | Why it’s time for Hong Kong to go the way of Singapore on GST

  • With the city facing a massive deficit, it must prioritise spending where it matters and find new sources of revenue
  • A goods and services tax implemented at the wholesale level might not be too onerous, and would reassure investors in government bonds of the city’s financial health

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People enter a shopoping mall in Causeway Bay on January 1. A goods and services tax could provide Hong Kong with much-needed revenue. Photo: Elson LI
The budget that Financial Secretary Paul Chan Mo-po presents to the Legislative Council this week will be the toughest of his career. In his last budget speech, Chan had forecast a cash shortfall in the current financial year of HK$54.4 billion (US$6.96 billion) after taking into account bond sales of HK$65 billion.
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In recent months, Chan has indicated the shortfall could exceed HK$100 billion. Major accounting firms have issued similar figures. As at December 31, 2023, the city had a deficit of HK$208.9 billion, offset by bond proceeds of HK$66.6 billion, leaving a net cash outflow of HK$142.3 billion.

January is normally a good month for revenue as first instalments of salaries tax come in, but February and March will no doubt be in deficit, so the end December numbers are a reasonable proxy for the whole financial year.

Leaving aside that persistent deficits on this scale put us perilously close to breaching Article 107 of the Basic Law, the present situation has important implications for government finances in terms of spending, revenue raising and the market for government bonds.

On spending, one does not need to be a genius to see that running a substantial deficit constrains our scope for extra spending. Despite this, at least one major political party is advocating a new round of consumption vouchers, but it’s not clear where the money for this is to come from. While the vouchers are popular, another round of them would be irresponsible. We need to get serious.
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Chan would do well to fund all the initiatives set out in Chief Executive John Lee Ka-chiu’s policy address in October last year. Lee outlined a number of worthy improvements, particularly in services for the elderly and less well-off. Nobody is pretending that everything is perfect, but we must prioritise better if wish to improve. We cannot afford to lavishly spend on matters that lack the urgency of others.
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