quick comments: 1) The budget speech is getting way too long - 2 hours 15 minutes... 2) The problem of HK's increasing govt led economy is quite clear from how many fingers are stuck in so many pies, including those pies the city has no competitive advantage in (AI?). 3) deficit spending and multiplication of funds and govt run quangos is the new challenge - HK's debt to GDP is likely to go from 14.4% to a record high of 19.9%. It is a dangerous sense of security to say we are better than the 'developed economies' to borrow like there is no tomorrow, when the global environment is worsening on economic, trade, and geopolitical fronts, while interest rates are exploding from multi-decade lows. Very worrying!  4) small handouts to calm the masses is wearing thin - and complicating the tax return process. Just cut the tax rates already, or abolish income tax like Trump promised will do for the USA...? Below are the more important sections we have extracted for your reference, all text between the [] marks are our comments: Hetao Hong Kong Park 67. We will seek approval from the Legislative Council (the LegCo) to inject a funding of $10billion to the park company to accelerate the development of the Hetao Hong Kong Park by engaging the market to speed up the disposal of the remaining land parcels under Phase 1 development, providing key infrastructure, further strengthening support to start‑ups and establishing a venture fund. [comment: going headlong into tech investment with tax payer money can be a bottomless drain on HK’s limited resources? How can a small city match the US$trns of private money by state scale mega corps with all the expertise? See chart below  Also how can a single tiny city of 1100sq km match the collective land resources that big nations can deploy in building (see map below)? Isn’t HK’s advantage in hubbing and spoking rather than competing in brute hardware arms race? There is a case for limited hardware for catering to HK’s unique offshore needs, but most of that can be done by leasing in China – like bonded warehouses?  HK simply is not in the league so please do not play the ambulance chasing game? When China is but a fraction of EU/US, how can HK’s tiny footprint even catch up? See chart below:  ] Patient Capital 89. Since its full operation, the HKIC has invested in over 190 projects spanning various fields, which mainly include hard and core technology, life technology, new energy and green technology. Ten of the investee companies are already listed in Hong Kong, with a further 20preparing for listing this year. Every dollar invested by the HKIC attracted over eight dollars of long‑term capital investment, effectively drawing "patient capital" from the global market to jointly expedite the development and innovative application of frontier technologies. Considering that the initial capital of the HKIC of $62 billion has been largely allocated, we will arrange for capital injection in a timely manner to further promote I&T development and industry clustering. [comment: again, using tax payer money to fling into speculative early stage investment was the result of zero interest rate days, this is no longer the case, time to stop and privatise the HKIC rather than adding burden to the people] Facilitate Asset Management by Enterprises 103. To enhance the business environment and facilitate internal restructuring by enterprises, we propose to relax the criteria for stamp duty relief in relation to the intra‑group transfer of assets. [comment: this is what HK does best and should focus on, including cutting taxes] Enhance the Regulatory Regime 119. To strengthen the regulation of money lenders, the Government will release the consultation outcome and specific measures next month to address the issue of excessive borrowing and better protect the public. [comment: being too paternalistic is generally bad for HK’s flexibility and entrepreneurial flare, stay away from overarching regulations please!] Attract Enterprises and Investment 128. …Policy tools include land grant arrangements, financial subsidies and tax incentives. The preferential tax rates will be half‑rate or fivepercent. We will introduce an amendment bill this year. [comment: this is what HK does best, just provide the land resources so businesses don’t pay higher taxes through much higher rents than necessary ] High Value‑Added Maritime Services 145. …to enhance tax concession measures for the maritime service industry and provide a half‑rate tax concession to eligible commodities traders. 146. … permitting dual registration arrangement. [comment: why not slash the overall tax rates instead of creating so many pools of ‘favoured’ tax areas that complicates the admin and makes rent seeking?] Attracting Talents 175. …We launched the $3billion Frontier Technology Research Support Scheme last year to align with the country's strategic plan for frontier technology development. [comment: again, govt will always be slow vs private sector – instead of throwing money about, the govt should lower cost (price/rents?) by increasing supply] Sports Industry 192. We will inject $1.2billion into the sports portion of the Arts and Sport Development Fund to further promote sports development, …and developing sports as an industry through the "M" Mark System. [comment: lack of population and training grounds will not make it easy… is this too grand an ambition for a city?] Cultural and Creative Industries 194. …A total of over $9billion has been injected into the CreateSmart Initiative and the Film Development Fund. [comment: it is good to see some good movies, but should this be coming from the private sector? Is tax payer money best spent at their own discretion?] Achieving the Dual Carbon Targets 198. We are actively implementing the Hong Kong's Climate Action Plan 2050, as we strive to reduce our carbon emissions by half from the 2005 levels before 2035 and achieve carbon neutrality before 2050. [comment: this is a dangerous bureaucratic driven initiative which the USA is walking away from, HK should also abandon this expensive and life-standard lowering ‘ideal’] Electric Vehicles 207. …The first registration tax (FRT) …concession arrangement for electric private cars will not be extended beyond its expiry at the end of March this year. [comment: good to remove the visible hand from the market of cars ] Land Development and Infrastructure 211. …seek funding approval from the LegCo for injecting an initial capital of $10billion to support its initial operation and development needs, thereby facilitating its operation to commence by the middle of this year. [comment: will this be another science park, cyberport, or cruise terminal? Ensure it is not led by civil servants who have no experience in running businesses in their lives?] Land Supply 216. In view of the vacancy rate in the non-residential property market, the supply and demand, the Government will not put up general commercial sites for sale in the coming year. In addition, the HKIC will collaborate with regional and international long-term capital to channel funds into high-quality commercial property projects that align with Hong Kong's industrial positioning and match them with enterprises from target industries. [comment: no more land for private market, all the land for govt driven … dare one say… ‘white elephant’ projects?] Promote Application of Innovation and Technology 227. The Construction Innovation and Technology Fund serves to promote the industry‑wide application of I&T, thereby enhancing productivity and site safety as well as reducing construction costs. We will inject $1billion into the fund to continue supporting industry development. [comment: hmm… ] 235. DEVB is conducting a comprehensive review of the Operation Building Bright 2.0 to draw up a new subsidy scheme. We will earmark $3billion accordingly. Moreover, we will allocate $1billion to extend the Lift Modernisation Subsidy Scheme to provide subsidies to property owners. [comment: everyone will welcome some free money – but govt subsidies usually cause prices to rise where private sector would save before… ] Public Finance 252. …As a result of the robust stock market and an accelerated economic growth, revenue from stamp duties and profits tax has increased by nearly $50billion in total compared to the original estimate. In 2025‑26, the Operating Account will return to a surplus ahead of schedule, while the Consolidated Account will be broadly balanced after taking into account the net proceeds from bond issuance. [comment: sadly no tax cuts… which benefits HK’s international competitiveness on all fronts?] 253. …The Capital Account will nevertheless still record a deficit annually, mainly due to a high level of capital works expenditure. …we will meet the financing needs by suitably increasing bond issuance. During the period, fiscal reserves are expected to gradually increase to over $700 billion. [comment: higher reserve but funded by debt issuance? ] Strictly Containing the Growth of Operating Expenditure 258. We will take forward the Productivity Enhancement Programme as planned. …the Government's recurrent expenditure will be cut by two per cent in both 2026‑27 and 2027‑28, delivering further savings of about $7.8 billion and $15.6billion respectively over 2025‑26. 259. The civil service establishment will be reduced by twopercent in each of the coming two financial years to an estimated level of about 188000posts by 1 April 2026, resulting in a cumulative deletion of over 10000posts within this term of Government. [comment: much needed public sector reduction most welcome ] Increasing Revenue 261. On increasing revenue, …: (a) The rates of stamp duty on residential property transactions valued above $100million will be raised from 4.25percent to 6.5percent, affecting about 0.3percent of residential property transactions. It is estimated that revenue will increase by about $1billion per annum. …; and (b) Last year, we …imposing the global minimum tax and implementing the Hong Kong minimum top‑up tax on large multinational enterprise groups with an annual consolidated revenue of or above EUR750million. This measure is expected to bring in an additional tax revenue of about $15billion for the Government annually starting from 2027‑28. [comment: is there any way we do not follow the high tax suicidal EU madness?] Consolidating Funds Established Outside the Government's Accounts 262. …we have brought back $61.5 billion from six seed capital funds with a relatively large unspent balance to the Government's accounts for optimising the use of government financial resources. I have also instructed various policy bureaux to conduct a full review of the remaining 36 purpose‑specific funds established outside the Government's accounts. After carefully assessing the individual circumstances of the funds, we propose: (a) revising the financial arrangements of four funds to bring back their unspent balances, on the premise of supporting their operations in the next five years; (b) closing a fund which has accomplished its policy objectives and two funds for which objectives can be met more effectively under the established funding mechanism, and bringing back their unspent balances; (c) consolidating six funds into three for enhanced efficiency in the use of resources; and …The above measures are expected to bring back about $15.8 billion to the Government's accounts in 2026‑27. [comment: in future all ‘funds’ should have sunset clauses as a basic condition, and subject to regular audits ] Bond Issuance 266. …The Government's capital works expenditure is estimated to be about $128billion for 2026‑27. Capital works expenditure will remain at a similar level during the Medium Range Forecast (MRF) period. 268. …the NM and other public works projects [means] we plan to raise the total borrowing ceiling of the two bond programmes from $700billion announced last year to $900billion. About $160billion to $220billion worth of bonds will be issued in each of the next five years, … 269. …government debt to GDP will rise from 14.4 per cent to 19.9 per cent [comment: OUCH! ] 275. 二零二六／二七年度政府整體開支將上升約百分之六點九至八千四百三十四億元，相當於名義本地生產總值的百分之二十四點二。 [comment: ] Supporting People and Enterprises 279. (a) …rates concession for domestic properties for the first two quarters of 2026/27, subject to a ceiling of $500 for each rateable property. This measure is estimated to involve about 3.15million domestic properties and reduce government revenue by about $3.1billion; (b) …rates concession for non‑domestic properties for the first two quarters of 2026/27, subject to a ceiling of $500 for each rateable property. This measure is estimated to involve about 440000 non‑domestic properties and reduce government revenue by about $400million; (c) reduce salaries tax and tax under personal assessment for the year of assessment 2025/26 by 100percent, subject to a ceiling of $3,000. The reduction will be reflected in the final tax payable for the year of assessment 2025/26. This measure will benefit about 2.12million taxpayers and reduce government revenue by about $5.3billion; (d) reduce profits tax for the year of assessment 2025/26 by 100percent, subject to a ceiling of $3,000. The reduction will be reflected in the final tax payable for the year of assessment 2025/26. This measure will benefit about 171000businesses and reduce government revenue by about $500million; and (e) provide an allowance for eligible social security recipients, equal to one month of the standard rate CSSA payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance, while similar arrangements will also apply to recipients of the Working Family Allowance, altogether involving an additional expenditure of about $6.5billion. [comment: small favours intended to overshadow the debt explosion? ] 280. (a) increasing the basic allowance and single parent allowance from $132,000 to $145,000, and the married person's allowance from $264,000 to $290,000. This measure will benefit about 2.09million taxpayers and reduce tax revenue by about $3.56billion a year; (b) increasing the child allowance and additional child allowance from $130,000 to $140,000. This measure will benefit about 360000 taxpayers and reduce tax revenue by about $680million a year; and (c) increasing the allowance for maintaining a dependent parent or grandparent and raising the deduction ceiling for elderly residential care expenses. These measures will benefit about 830000taxpayers and reduce tax revenue by about $970million a year. I will make the following three adjustments: · increasing the allowance for maintaining a dependent parent or grandparent aged 60 or above from $50,000 to $55,000. The same increase applies to the additional allowance for taxpayers residing with these parents or grandparents; · increasing the allowance for maintaining a dependent parent or grandparent aged 55 to 59 from $25,000 to $27,500. The same increase applies to the additional allowance for taxpayers residing with these parents or grandparents; and · raising the deduction ceiling for elderly residential care expenses from $100,000 to $110,000 for taxpayers whose parents or grandparents are admitted to eligible residential care homes. [comment: more complications designed to give more jobs to tax consultants? The temptation to increase complexity by govt is always there, the challenge is to remove as many tiers and rates and thresholds rather than adding more of them… ] Details can be found here: |
2026年2月25日星期三
HK budget - Quick comments on a drawn out speech
2024年9月2日星期一
HK should resist unwarranted minimum wage encroachment
In a significant policy shift, HK’s Executive Council approved a wholesale expansion of the minimum wage regime (see here), including: 1) annual instead of biannual reviews; 2) adding economic growth on top of just inflation for basis of adjustment; 3) placing a floor on changes, ie minimum wages cannot be reduced, regardless of economic conditions. These recommendations, made by the Minimum Wage Commission, whilst well intended, will severely undermine HK’s ability as a small and open economy to adjust in a rapidly changing political/economic dynamics, and where labour as a production factor is increasingly challenged by technology and integration with China. The timing and direction both bode ill for the city’s wellbeing going forward.
Will HK fast lose its labour
competitiveness vs peers?
To
put the above ‘reforms’ in context, it is helpful to compare how HK’s current
minimum wage numbers stack up against its global peers/competitors. Chart 1
below is ranked from high minimum wage to low order, with the highest 5 in red,
the lowest 5 in blue, and the rest in green:
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Chart 1: Minimum annual wage from high to low by country  |
It
is interesting to see that the lowest minimum wages are dominated by Asian
economies – Indonesia, Vietnam, India, and Singapore (which does not have an
official minimum wage, hence the bar reaches 0 on the chart). On the other
hand, the highest minimum wages are found in rich and largely Anglo Saxon
jurisdiction such as Switzerland, Australia, NZ, Ireland…
Look
at this a different way, we arranged the countries in descending order of
‘average pay : minimum pay ratio’ and below is the outcome:
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Chart 2: Ranking of ratio in average income to minimum wage  |
It appears that financial centre type economies
dominate the high ratio end of the spectrum (top 5 in red markers), such
as Singapore, US (via NYC / Chicago), HK, Luxembourg, reflecting how finance
sector having a disproportionate contribution on the average income of the
labour force. On the low ratio end (ie minimum wages set higher relative to
average pay, blue markers), we see mostly manufacturing and farming
economies, such as Poland, S Korea, NZ. It must be noted that in the above
chart, Italy and Singapore do not have a
formal minimum wage system, so their ratios are meaningless (so we identify
their ratio with brown markers).
Represented in a two dimension way, we can see
a norm emerge in the average-to-minimum pay ratio – obviously higher income
countries can also afford higher minimum pay, and this explains why most of the
countries follow the three dotted trend lines below:
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Chart 3: higher the average pay, higher the minimum wage  |
Do high minimum wage lead to lower
economic growth?
But
how do we look at the big outliers against the trend? Obviously, the ratio as a
measure of welfare is a significant factor that may impact a country’s economic
performance, so we plotted this against recent growth record to reach this
picture:
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Chart 4: 10-year per capita GDP growth are higher in relatively lower minimum wage countries  |
Again,
a clear trend is identifiable, but this time, the trend lines point to higher
economic growth for higher average-to-minimum-wage ratios. The most extreme
outliers with much higher ratios are labelled in red: Vietnam and China
being the starkest examples. On the other extreme, Greece, Brazil, and Japan
are lagging the most in economic growth coinciding with their respective low
income ratios (blue label text).
Tax
rates go up with lower welfare, reversing beyond a certain point?
We next explored how the relative level of
minimum wage impacts the tax rate of its host country. The result is not so
linear at all – one would expect the higher the average-to-minimum wage ratio
the less the welfare burden would be, and therefore the lower the tax wedge
should be. However the trend is the reverse – we see below that as the ratio
increases from 1.5 towards 3 (ie from Poland towards Japan), the actual tax
wedge increased:
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Chart 5: Tax wedge against average-to-minimum wage ratio  |
The rising pattern
follows the blue trend lines until we hit a much higher ratio value
around 4 (ie Luxembourg levels) when a new trend emerges that starts seeing tax
wedge dropping again (purple trend lines) – does this mean that if the
jurisdiction is rich enough and sticks to a low minimum wage relative, it can
avoid needing to raise more taxes to finance this welfare? Or are Russia, HK,
Singapore unique exceptions to the rule in the high ratio zone just as Taiwan,
Indonesia are in the low ratio zone?
Visible hand always causes unintended distortions
Despite having
over a decade of experience with minimum wage administration, the disadvantages
of putting such an important economic lever in the hands of bureaucrats is
obvious:
1) Political pressure rises during volatile
asset upcycles – when home
prices rise in a bubble (blue line in Chart 6, between 2012 and
2020) however fast minimum wages (red line) are adjusted up by the govt,
there will be cries of stinginess, as pay simply cannot catch up with the exponential
rise in home prices (thus the wage increases will still be woefully home buying
needs);
2) Private market cries foul in downcycles – although the minimum wage never catches
up with private sector pays in the upcycle, note how rapidly private sector pay
adjusts to economic downturns (green line in 2019-21, and no doubt
2024+) whilst the govt mandated minimum wage has only gone in one direction:
forever rises, causing societal divide and cries of unfairness especially
during times of economic hardship. The current proposal of not allowing the
minimum wage to fall is not only redundant given past practice, but is also idiotic
as it belies basic economic theories!
3) The govt’s new proposal to benchmark
minimum wage to overall GDP growth obviously incorrectly imposes the
city-wide total output over what should be a per capita measure in the
minimum wage situation. What this means is, if HK’s population grows fast, but
overall wage rates stay stagnant, minimum wage will still be lifted
irrespective of overall wage levels;
4) Minimum wage never underperformed CPI (purple
line) except briefly in 2014 – this may be why the govt has to ditch CPI as
a measure, even though the disinflationary cycle is over thanks to geopolitics
and deglobalization, meaning in future stagflation will result in inflation
going above wage increases. How behind the curve the people residing in ivory
towers could be proven again in the next few years just when the new proposals
go into effect?
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Chart 6: comparable benchmarks all seem to underperform minimum wages since it’s launch in 2012!  |
For the sharp eyed reader, the biggest surprise of the chart above is
not how minimum wage has been rising too slowly, but how as of now it has risen
more than all other alternative benchmarks… does this not actually annul the
need for any change to increase minimum wage’s downside protection, but
necessitate a more urgent need to ensure it does not detach itself from the
wider economy and fairness to tax payers?
We leave you with an illustration of why this form of price control
(which minimum wage is a form of) does not work – in a free economy, all types
of supply and demand find equilibria wherever the two meet (Chart 7),
but in a minimum wage scenario, the willing contributor to supply is banned from
making that supply (dark red area in Chart 8), while all legal supply
now starts above the threshold (red dotted line), but with less supply
in the system, the price response is steeper as a result, with everyone in the
system paying more (purple hatched area):
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Chart 7: Supply demand
without minimum wage |
Chart 8: Supply demand
under minimum wage |
 |
 |
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Figure 1: automation
replaces existing supply  |
Figure 2: … or supply reduction, resulting in workers increasing input intensity?  |
The author would like to thank Pan
Ming Yue from City University of Hong Kong majoring in Finance and Muhammad
Mudassar from City University of Hong Kong majoring in Global Business for
assisting in data collection, analysis, and drafting this article.
HK traffic management: overtaken by frontier countries?
HK govt’s slogans when marketing the city has long been “Asia’s World City”, but this title certainly is not worthy when applied to HK’s ever archaic and user unfriendly traffic management systems. In this and a following article, we highlight some aspects that show up how HK has become a backward city in this most important aspect of citizen’s daily life.
High anxiety at traffic lights
When
dealing with situations where patience is needed, and where uncertainty is high
such as at red lights where the waiting time could be anything from 30 seconds
to well over a minute, do you not feel a calming effect when you can see the
red light counting down to zero?
Isn’t it also safer when you drive towards crossings, but are unsure whether the light will turn amber/red at any minute?
These surely are the exact reasons why increasingly cities around the world are moving towards a countdown system, be it from red light to green, or the other way round? What should shock most visiting road users from other jurisdictions to HK should be how lacking is this simplest of form of user-friendly feature at HK’s roadside, when city after city have already adopted it all around us:
For example, Singapore has adopted the system since 2003, and even cities in emerging economies like Shenzhen (from 2009), Ho Chi Minh (2010), and Bangkok (2013) have followed suit. As far as we know from searching the internet, the best HK govt has done is a trial programme in 2022, with no follow-on action whatsoever.
The benefits of countdowns at traffic lights are already well documented in various research studies, including:
a) significantly improved driver response at intersections – drivers make safer decisions in the “dilemma zone,” where they are unsure whether to stop or proceed when the light turns yellow. Drivers stopped 13% more before the lights and reduced deceleration rates prior to stopping (see report);
b) reduced start-up lost time at the beginning of the green phase by ~22%, which translates to a more efficient flow of traffic and reduced delays (see report).
c) decreased red-light violations of as high as 50% during the initial phase of the red light, improving safety;
d) enhanced roadway capacity by reducing headway fluctuations among vehicles, leading to an increase in the overall capacity of the intersection by about 5% to 10%
There are many other benefits cited in the above research, which we will not repeat here. Given how wide ranging the advantages are, and how widespread the adoption of countdown traffic lights, one cannot help but wonder out loud: what is HK Transport Department doing delaying its roll out?
Diagonal pedestrian crossings – need immediately roll out
Whilst even third-tier cities like Changsha (see Figure 5) have widely adopted diagonal pedestrian crossings, HK has only timidly implemented its first such arrangement.
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Figure 5: diagonal pedestrian crossing in Changsha, China
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Our first diagonal crossing was only put in place at the junction of Sha Kok Street and Yat Tai Street in Sha Tin on 31 Jan 2024, and the second crossing at Carnarvon Road and Granville Road, Tsim Sha Tsui began in August:
It is interesting to see how people used common sense to diagonally cross even before the designated routings are painted on the ground. The benefits are obvious – for many pedestrians, their destination is not just one street across, but two (hence the diagonal crossing), and having the new arrangement must save millions of hours of waiting time a year for the pavement users collectively.
Instead of waiting for public pressure to build up before making moves, why has the Transport Department not initiated studies to look into the time savings? In fact multiple research studies have already been done already, for example: the Vaziri study in Beverly Hills (see here) in late 90s showed an average 66% reduction in pedestrian accidents at these intersections.
Where next to implement? Please leave comment below!
We end with the world’s most famous diagonal crossing in the world: Shibuya Station crossing in Tokyo (Figure 8) – it was inaugurated in 1973. Such ‘pedestrian scrambles’ as they are known in Japan is so popular that there are over 300 such intersections all over Japan today (reference here).
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Figure 8:
Shibuya Crossing, Tokoyo
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So, HK has a lot of ground to make up, we have a number of potential candidates (eg. Pedder St in Central) that we have identified ourselves, but your contribution can no doubt vastly expand the target list, thus spreading convenience to all pedestrians in HK…
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Figure 9: possitble addition: Pedder Street - Des Vouex Road junction?
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The author would like to thank Ng Shiu Long Colin from City University of Hong Kong majoring in Global Business for assisting in data collection, analysis, and drafting this article.