Public Finance of Hong Kong

Public finance

A government‘s spending and revenue → affect its citizens and the whole economy

Major items of government spending in Hong Kong

• Healthcare: run public clinics/ hospitals, prevent infectious diseases

• Environment and food: protect/ conserve environment, maintain environmental hygiene, ensure food safety

• Economic: financial system, preserve jobs and develop pillar and emerging industries

• Education: formulate policies, provide/ oversee education from kindergarten to university, training/ retraining

• Social welfare: provide social security and services for children, elderly and poor ppl

• Infrastructure: construct building provide transport services and water supply

Major sources of government revenue in Hong Kong

• Land premium: money made from land sales of land plots

• Salaries tax: levied on salaries/ pension from employment

• Profits tax: levied on business profits

• Stamp duties: levied on sale, lease and transfers of immovable properties or stock transfers

Characteristic of public finance of the HKSAR government

Article 107 of Basic Law

• Keep expenditure within the limits of deuce in drawing up its budget

• Maintain fiscal balance

• Avoid deficits

• Keep budget commensurate with the growth of Gross Domesti Product

Types of budget

• Balanced: revenue = spending

• Deficit: revenue < spending

• Surplus: revenue > spending

Rights and responsibility in public finance of HK ppl

• Rights: enjoy services provided by gov free of charge or at price below cost

• Responsibilities: pay tax to ensure gov has enough money to provide diff services

Goals of public finance

• Meet people’s needs: provide services for housing, medical services, social welfare, infrastructure, recreation, environment, cultural

• Stimulate economic growth: spend more money on education and infrastructure to improve competitiveness and raise productivity to attract foreign investors

• Reduce income inequality: redistribute income from rich to poor by providing services and welfare payments

Governing principle of HKSAR government

• positive, non-interventionist approach

• Small government big market

• Generally doesn’t intervene, through subsidies and direct provision of services

• Free market

• Intervenes → make economy more fair, effective and efficient

• Welfare provision: regulator rather than provider to exercise fiscal prudence

Characteristics of taxation system in HK

• simple tax structure

• low tax rate

• narrow tax base

Positive outcome of this taxation system

• encourage ppl to work harder to earn more

• attract foreign investment and promote external trade

• improve competitiveness, favourable business environment for rapid economic development

Rationale behind the governing principle of HK

• being a welfare provider: financial burden and financial sustainability

• change low tax policy: undermine competitiveness

Types of welfare and CSSA scheme

• recurrent cash benefits

• non-recurrent cash benefits

• means-tested in-kind benefits

CSSA scheme:

• safety net for ppl w/ X financial support

• bring income to prescribed level to ensure basic needs

• ensure public finance used correctly