Hong Kong's economy made a robust recovery last year, propping up both the stock and property markets. Revenue generated from stamp duty and land sales has significantly exceeded expectations, up to the third quarter of this financial year, boosting the budget surplus to HK$59 billion. The surplus for the whole year is forecast to reach HK$70 billion, bringing the amount of accumulated surplus to a whopping HK$600 billion.
With such a large surplus, it is understandable that there are more calls for budget handouts to ease inflationary pressures and tackle the worsening wealth gap.
We should be open to suggestions on how to broaden our tax base. I am not against the government seeking out new tax options, such as expanding the scope of the progressive tax structure. In fact, the introduction of additional stamp duty last year to curb property prices and speculation is effectively a form of asset appreciation tax to enlarge our revenue base.
But, in the midst of these critical voices for change, some academics proposed that the government should introduce a land appreciation tax to make the tax system more fair and efficient. This suggestion has not been thought through and we should not take it too seriously.
Land scarcity has created the perfect breeding ground for soaring house prices, and land sales are a major source of revenue for the government to finance capital works projects. The government charges a premium for all types of land for sale and redevelopment, whether it is through the application list system or land auctions. So, in a way, there is already a form of land appreciation tax embedded in the system, a main cause of high land prices, on top of restricted provision of affordable housing.
Another misconception, which is being widely circulated, is that the stock exchange urgently needs to expand by merging with other exchanges, following news last week that the London Stock Exchange was in talks to merge with Toronto's TMX exchange. The merger will potentially create the world's dominant mining and energy company bourse and the world's fourth-largest exchange.
That news has fuelled further rumours of a growing wave of mergers of stock exchanges across the globe.
Stock exchanges may indeed have entered a new round of consolidation that could radically alter trading activities for millions of investors. Critics say the globalisation of financial markets has advanced so rapidly that it is hard to see how international mergers can be resisted, and Hong Kong is no exception.
Hong Kong can, and should, buck the trend. Our exchange is in a unique position as it provides an effective stock trading and investment platform for China with the rest of the world. It competes on equal footing with New York and London as a leading financial centre. It also has a geographical and time advantage over Tokyo, and even the planned merger between the Australian and Singapore exchanges. The Hong Kong exchange is a very attractive investment that offers a high return on equity - a remarkable 61.41 per cent, at the top of the chart, compared to Singapore's 40.16 per cent in second place.
When the time is right, Hong Kong should forge an alliance with the Shanghai and Shenzhen stock exchanges. The mainland's capital account liberalisation still has a long way to go and Hong Kong will continue to play a significant bridging role for investors entering the country. And, until the internationalisation of the renminbi comes about, the city will maintain its status as the mainland's financial gateway to the world.
Albert Cheng King-hon is a political commentator. taipan@albertcheng.hk