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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Wednesday, July 12, 2006

I Have Very Mixed Feelings About The Proposed Tax Changes....

The Hong Kong government, arguing that they want to create a more stable revenue base, is considering adopting a Goods and Services Tax [GST] not unlike the VAT that is found in many countries and is especially popular in Europe. A GST is like a sales tax that we find back at home in the US, levied by the state and local governments. A story on this is in today's Standard.

The benefits to a tax on goods and services is that it broadens the tax base and does create a more stable income stream than the revenues generated from the manipulative off-and-on land sales to the evil tycoons of Hong Kong.

On the flip side, generally, class-warfare warriors argue that a GST is not progressive and hits the poor harder than people that are better off. This is true, but it also reinforces that all the people have a stake in the performance of their government and not just the small sliver of people that are paying taxes. I think that everyone, no matter how poor, should pay some taxes. By participating in funding their government, it will make them more 'aware' of how their tax dollars are being spent. However, a GST is really an invisible tax and the risk is also that governments tend to raise these taxes more easily. A fine example is the recent sales tax fight in New Jersey. The Democrat Governor [who actually I know personally] wanted to raise taxes by an incredible 2%. In the end, it was raised, with 1% supposedly to be returned to the citizens. I am sure that 1% won't be returned for very long and that additional 1% will end in the State's treasury coffers to be wasted on another misguided silly program!

One of the biggest problems I have with the argument that the 'GST is more stable revenue source' is that the government, when they manipulated land sales by stopping them for an extended period, intentionally reduced revenues, and they really didn't have to. The uber-wealthy property tycoons are in the business of developing property and the price that they buy the land or the land premiums collected is:
Bid price today=FDP-CD-profit
FDP= expected market price when the development is finished
CD=the cost of development
Profit= the massive profits that they earn on doing the developing [where there is little risk and generally almost a guaranteed profit]
If the government planned out their land sales strategy properly, then they can make available for sale land to meet the market demand for new flats in Hong Kong. Think of it this way, in the US or in other countries, when demand for homes rises, then developers [or others] go into the market place and buy land from others and build new homes or hold the land in anticipation that someone would like to build on it at a later date. Here in Hong Kong it doesn't work this way. The land is 'released' using some secret unknown formula raising risks for some and reducing risks for others.

I think that the government should embark on a wholesale selling of land for development so that the land becomes private property and then is developed according to demand. Of course, there can be restrictions imposed from the beginning, like there is now, so that the land isn't misused and this will impact the price today. Even if the price of land falls, its price will truly reflect market demand and there will be more information disseminated on the true value of property in Hong Kong. The government should not be in the business of forecasting demand or in manipulating market prices. And the government should not be in a position where they should be relying on revenues from dribbling out supply. Who does this benefit and why is it done this way? Obviously, by reducing land sales to zero for years does not bolster government revenues and I think that they would not be able to prove that their strategy produces a greater future value. All available land to be developed should be sold and that money can be put into the coffers of the government raising lots of cash!

Besides, the land is not the property of the government but the property of the people where the government administers the process. The actual value of the land is meaningless, since no matter what price it is sold at, the people either get it to live on it or they get the revenues when it sold. If the land costs a lot then the people are actually paying money to themselves but paying the premium to the government. The problem that I have with the process now, it that it allows uber-wealthy tycoons unequal access to this asset and restricts competition. Additionally, tycoons are able to manipulate the government to protect their interests over that of the people in general as was shown by the government stopping land lands in the past.


At 3:33 PM, Anonymous Anonymous said...

11 + 5 = 16 = existing Salaries Tax rate = no sweetening = usual steaming piles of it = exemption from GST for land premiums but not for any other sales = a clarification that this Govt has no intention of actually listening to what it hears from the plebs.


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