The rich and influential are clearly worried about antibusiness sentiments. It is not often we hear tycoons calling for higher taxes but this is what property developer Henry Cheng Kar-shun of New World Development did this week. He said there was a need to redistribute wealth in Hong Kong and a moderate rise in profits tax plus a levy on developers’ income from property sales could help the poor. An allegation frequently heard is that property tycoons and the government “collude” to keep land prices high. Officials won’t confirm there is a policy to keep prices high but the government sees its role as one that safeguards public revenue “through the policy of not selling land cheap”, which in effect means supply has to be managed.
That is the reason the financial secretary addressed land sale arrangements for residential and commercial sites in his budget, in light of public complaints about astronomical property prices.
The government does have ultimate control over land supply and, therefore, prices. Land income is a key source of its revenue.
In the budget, the financial secretary refers to the government’s role in “ensuring steady and adequate land supply”. The itemising of sites that are to be made available for sale in the coming few years and the number of flats they could generate tell developers a lot about government intentions, but it is not easy for the general public to really understand what impact they will have on society.
The appendices reveal land income is expected to be HK$62 billion in 2011-12, making up 16.5 per cent of total government revenue. Stamp duties make up 10.7 per cent of total revenue and a good chunk is related to property transactions. The government expects similar figures for the next five years. In other words, in selling more land, it expects healthy incomes from land and landrelated transactions in future budgets.
A high land price policy serves developers, too, as they depend on a rising market to produce capital gains on land banks and development under construction.
In Hong Kong, land income is put in the Capital Works Reserve Fund, which the government uses to pay for infrastructure projects. In the current year, the government plans to spend over HK$58 billion on roads, highways, bridge and airport-related infrastructure. The Housing Authority, which builds low-cost public housing, has its own construction budget, which for the current year is expected to be around HK$6 billion.
Many of the large property development companies have construction subsidiaries. In other words, the property development and construction sectors are closely related. The major developers are among the largest and most profitable companies in Hong Kong, so the profits tax they pay should be seen as part of the total picture.
Cheng’s proposal is for the government to increase profits tax by half to one percentage point and to use the money to set up a fund to implement relief measures for the poor. He also suggested a special levy on developers’ revenue from property sales and for the money to be used to build public housing and low-cost subsidised flats. He said developers “are making so much profit” and that “it is natural that anti-rich and anti-business sentiments would grow”.
It seems he prefers to be taxed than to donate to the government-created Community Care Fund, for which the administration is providing HK$5 billion and is calling on the rich to put in an equivalent amount to pay for services for welfare recipients that are currently not covered by government.
The land system in Hong Kong lies at the heart of the city’s politics and economy. So far, no administration before or after 1997 has had the courage to discuss how the long-standing land policy affects society as a whole. Aspiring chief executive candidates should note Cheng’s conclusion – only by ensuring a fairer distribution of wealth will the government regain popularity. It’s time to give it some thought.