British-style governance, simple and low tax regime, free port and high land price policy are the four cornerstones of Hong Kong’s economic miracle.
The high price of land is a must for the government needs sufficient income. The policy enables the city to adopt a low tax rate internally and waive tariffs for all imports while maintaining good governance.
But the high land price has gone to such an extreme that it now threatens social and economic stability. Also, the government is now far less dependent on land sales revenue as it has opened up new revenue streams.
The recent measures unveiled by Chief Executive Carrie Lam Cheng Yuet-ngor has sent a key signal that the government intends to end the century-old policy.
The doctrine of high land prices has never been a formally declared government policy, and policymakers in the past had even denied its existence. But it has always been a guiding principle.
During the colonial era, the British governors auctioned land for the first time in 1841. The government wanted to develop Hong Kong into a free port in the Far East in order to serve the interests of the British Empire.
Toward this end, the government had to provide sufficient infrastructure and highly efficient governance.
A high tax regime was unfeasible; it would not attract merchants to do business in the territory. A policy of high land prices was the only option.
The rise of Asian economies and the obsession of Chinese with properties helped push the policy to an extreme.
But Hong Kong is no longer just a free port. It has become a global financial center and wealth management hub.
Land sales revenue now accounts for only 20 percent of the city’s fiscal revenue, compared with 60 percent in 1990s. Meanwhile, Hong Kong has fiscal reserves of over HK$1.1 trillion.
That being the case, the government no longer needs to put so much weight on land sales revenue. It might even consider giving up some of its land sales revenue in order to achieve other policy targets.
Lam announced on June 29 that flats under the subsidized Home Ownership Scheme (HOS) would be nearly 50 percent cheaper than private flats, instead of the current 30 percent discount.
The government will also reallocate nine government sites originally earmarked for private housing to build 10,600 public flats. She also voiced support for land reclamation.
All these measures have sent a key signal that the government is willing to give up some of its land sales revenue and increase the supply of public housing in order to ease the housing crisis for lower-income citizens.
This article appeared in the Hong Kong Economic Journal on July 4
Translation by Julie Zhu
[Chinese version 中文版]
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