Capitalist Solutions

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Help Those That Help Themselves

By Simon Patkin

Don’t Raise Taxes, Instead Cut Expenditure

(Note there are minor editing differences between this article and the SCMP article)

Donald Tsang recently noted that Hong Kong’s population is aging and asked couples to have three children each to help redress this imbalance. What Mr. Tsang does not realize is many middle class couples already support at least three children through the extra taxes taken from them -- including expanding expenditure on state-sponsored welfare, medicine and education. This is money they could spend on their own families instead.

Indeed, despite a forecasted budget surplus, it is these big government policies that are causing a cyclical deficit that pundits claim will drain Hong Kong’s reserves and put us in the poorhouse. Simply put, there is not enough working people to prolong Hong Kong’s welfare state and Donald Tsang’s solution would offer benefits to middle class families today so their children can be the indentured taxpayers of tomorrow.

Fifteen years ago, we never had this problem. According to government figures, spending has skyrocketed 340 per cent from 1989/90 to 2003/04. Education, up 430 per cent, health up 480 per cent and social welfare up a whopping 790 percent. This is an open-ended commitment that will never stop unless changes are made. To be fair much of it, including the string of budget deficits, can be traced back to the Patten Administration which saw welfare spending rise 300 per cent from 1992/93 to 1997/98.

There has been a deafening silence from the accounting profession about curbing this increase. Instead of defending responsible government, their leaders regularly talk up a sales tax that will additionally burden the middle class, both in the payment and the administrative costs to small businesses. No doubt, some accountants might clean up big with all the fees they could rake in setting up the systems and auditing compliance -- this is corporate welfare at its worst.

Instead of requesting more children or more tax, the government should be advocating personal responsibility -- not parasitism -- as one of Hong Kong’s core virtues. This means parents only having the children they can afford and educate themselves. At the same time, there should be a maximum percentage of government receipts spent on education, social welfare and health each year, reducing to zero expenditure over the medium term. For example, if social welfare was set to 10 per cent, then out of a $100 billion budget, a maximum of $10 billion could be spent. Additionally since education is a parent’s responsibility, there should be a move towards education vouchers. This means that any schools subsidies are paid directly to parents as vouchers so they can get used to paying for their children’s education. The ban on home schooling should also be lifted.

Despite worries that those in genuine need will be ignored, recent reports show that the middle classes are very benevolent -- many were once poor and worked themselves up to a position of affluence. They exercise responsibility in the size of their families and whilst they have no moral obligation to give up what they worked hard to earn, they give an average of $3,000 each per year to charity. Moved by the tsunami victims, Hong Kongers gave the most per capita in donations. At the same time, many welfare recipients receive more unemployed than they do when they work. Is it no wonder they choose to stay at home, rather than go out and support their own families themselves?

Finally, the high number of immigrants in Hong Kong on social welfare has been reported as a serious problem. Indeed, figures show that 25% of all births in Hong Kong public hospitals are by mainland women, at least some of who deliberately arrive to give birth and then refuse to pay for the service. However, most immigrants are hard working and hopefully we can see a new generation of successful people. But we need to see what kinds of abuses are taking place by new arrivals and whether some of the wrong people are slipping through. A points based immigration system should be one part of the solution to the entire deficit problem. Let’s hope Henry Tsang and Donald Tsang can choose a principled rather than a pragmatic long-term strategy so that the productive receive the fair treatment they so rightly deserve.

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