Hong Kong Aff
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- Spending DA – Poverty and
- Pro-Biz Perception - Protests
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Misc Add-onsSpending – RelationsSpending guts investor confidenceIDF 15 [(Index of Economic Freedom) “Hong Kong” Country Rankings, 2015] AT However, the economy’s institutional uniqueness, enshrined in its exceptional commitment to economic freedom and a high degree of autonomy pledged by the mainland, has faded a bit. Although Hong Kong maintains the features of an economically free society, economic decision-making has become somewhat more bureaucratic and politicized, and the government’s administrative scope and reach have expanded. Recent political events appear to have undermined public trust and confidence in the administration. Hong Kong became part of the People’s Republic of China in 1997, but under the “one country, two systems” agreement, China promised not to impose its socialist policies on Hong Kong and to allow Hong Kong a high degree of autonomy in all matters except foreign and defense policy for 50 years. The critical issue today is the shape and form that “universal suffrage,” promised for 2017 by Chinese authorities, will take. Although the government controls all land in Hong Kong, the economy has benefited from its commitment to small government, low taxes, and light regulation. Major industries include financial services and shipping; manufacturing has largely migrated to the mainland. Hong Kong’s economy has become increasingly integrated with China through trade, tourism, and financial links. RULE OF LAWVIEW METHODOLOGY Property Rights 90.0 Create a Graph using this measurement Freedom From Corruption 75.0 Create a Graph using this measurement Hong Kong continues to enjoy relatively low rates of corruption, although business interests exercise a strong influence in the unicameral legislature and executive branch. Beijing’s heavy-handed efforts in 2014 to assert greater control from the mainland have galvanized pro-democracy sentiments. The rule of law is respected, and the efficient and capable judiciary remains independent. Property rights are well protected. LIMITED GOVERNMENTVIEW METHODOLOGY Government Spending 89.7 Create a Graph using this measurement Fiscal Freedom 93.2 Create a Graph using this measurement The standard income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The overall tax burden equals 13.7 percent of domestic income. Government expenditures amount to 18.5 percent of gross domestic product. Public debt is low, and a budget surplus has been maintained, but population aging and greater spending on social programs have increased fiscal pressures. Spending DA – Poverty andGovernment spending is inflationary – this would increase povertyKui-Wai 14 [(Li Kui-Wai, professor at the Department of Economics and Finance, City University of Hong Kong) Hk Has Adopted A Sensible Fiscal Policy, China Daily 12-31-2014] AT The money saved will be returned to the relevant government departments in the future. In the short-term the economy is experiencing both low unemployment and low inflation. So it is an appropriate time to reduce government spending. This will help control inflation, which can steadily erode people’s purchasing power. In other words, the government should avoid encouraging inflation by spending when the economy is buoyant. Good fiscal discipline dictates that government spending be contrary to the business cycles. Therefore the government should spend more during recession to help the needy. But it should try to save during boom times to avoid the economy overheating. Hong Kong’s many years of fiscal surplus is a fine record and an economic strength rather than a burden. Indeed, Hong Kong’s strong fiscal performance is the envy of many nations. So the 1 percent spending cut serves more as a warning than a reduction in the quality of government services. In fact it offers an opportunity for government departments to encourage efficiency. Given the high level of social and economic development in Hong Kong, this is a sensible policy. Spending from the CP will spiral out of control, draining government revenue – this collapses the economy – maintaining a large surplus is keyKui-Wai 14 [(Li Kui-Wai, professor at the Department of Economics and Finance, City University of Hong Kong) Hk Has Adopted A Sensible Fiscal Policy, China Daily 12-31-2014] AT Secondly, the openness of Hong Kong’s economy means that shocks to the global economy can easily affect Hong Kong. Examples of this may include changes to US interest rates in 2015, the strength or weakness of the euro, imbalances in the mainland economy and greater use of yuan. Instability in remote parts of the world and unforeseen changes in Asia may also have an adverse affect upon Hong Kong. The 1 percent spending cuts are needed because of the risk of future problems. Many welfare advocates argue that the SAR government has a healthy fiscal surplus and should spend more. But this is a naive argument. Governments cannot spend simply because there is a surplus. Welfare spending can spiral out of control because the more money is spent, the more will be needed. In some ways, fiscal policy in Hong Kong has gone in the wrong direction since 1995. At that time the economy was in good shape but the government of the day increased short-term welfare expenditure. It was during a period of full employment, asset booms and rising inflation. It resulted in an asset bubble which burst during the 1997-98 Asian financial crisis. However, large increases in welfare since 1995 have been matched by increases in tax exemptions. Consequently, there was greater need for expenditure. But the budget was now constrained by a narrower tax base. This was the worst of both worlds. As a consequence, Hong Kong reported its largest fiscal deficit following the 1997-98 crisis. There were discussions about widening the tax base — including the possible introduction of a goods and sales tax (GST). Alleviating Hong Kong’s structural problems was set to take time. It was therefore appropriate that in 2005, government bonds were used as a monetary instrument. The economic justification was that it was better to “save and borrow” than just to drain fiscal reserves. Hong Kong returned to fiscal surplus soon after this. But the openness of the Hong Kong economy makes it vulnerable to external events. To prepare for these unexpected shocks, fiscal policy is effective in ensuring economic stability. It is a good way to smooth out rough parts of the business cycle. Hong Kong’s significant fiscal reserves are more than a sign of economic strength. They also demonstrate to local and foreign businesses that Hong Kong has the fiscal buffers to deal effectively with financial shocks. Therefore, it would be better if the financial secretary, during this stage of the business cycle, focused on strengthening Hong Kong’s economic capacity and skill base. Increasing welfare will not be effective. It will only increase spending — not economic output. Although unemployment is low, job security is unstable in terms of skill advancement and upward social mobility. Hong Kong economy is plagued with a vicious spiral of high property prices and a narrow range of services. Certain government policies do not encourage the consistent development of the economy. So reducing fiscal spending is an important step. But resources saved should be used to develop Hong Kong’s economy. They should be directed to enlarging economic capacity and improving skills. The government should stay in the back seat rather than engaging in economic intervention. Economic development should focus on productivity and output. Only this can actually enhance the welfare of all. Welfare and redistribution policies should only be used to help those seriously in need. Pro-Biz Perception - ProtestsGovernment is perceived as pro-business which fuels the protestsGu 14 [(Wei, Editor of China Wealth and Luxury and Head of Original Reporting for CWSJ., The Wall Street Journal) “Hong Kong Protests Also Fueled by Widening Wealth Gap” WSJ Oct. 9, 2014] AT The divergence in fortunes between Hong Kong’s tycoons and the general public is a reason for the social tensions in the city. Hong Kong today is more prosperous than a generation ago. But many middle-class residents feel squeezed. Hong Kong’s Gini coefficient, a measure of income and wealth distribution, has widened since Britain handed the territory back to China in 1997. The city is now more unequal than the U.S., the U.K. or Singapore. Civil servants, although better off than many, complain of salary cuts, and lower pensions, education allowances and housing subsidies. University professors have seen cuts to salaries and benefits. Gone are perks like subsidies for children’s overseas education. Meanwhile, homeowners have benefited. House prices are at a record high in Hong Kong, up by a third from a previous peak in 1997. Hong Kong’s retail rents are now the most expensive in the world. Tycoons are getting richer. Li Ka-shing , the city’s wealthiest person, whose companies control a range of businesses from power to property, has seen his wealth swell from $12.4 billion in 1997 to $31.4 billion currently, according to Forbes. Hong Kong’s government has remained pro-business. The city has no taxes on capital gains or inheritances, mechanisms that developed countries use to even out wealth. The government introduced a minimum wage in 2010, only after much debate. The business elite wields more power today than under British rule, holding great sway with leaders in Beijing, argues Brian Fong, an assistant professor at Hong Kong Institute of Education. Such links are viewed negatively in Hong Kong. A week after Chinese President Xi Jinping met in Beijing with dozens of Hong Kong tycoons, the current protests broke out. Their scale took many observers by surprise. Pro-Biz Perception – RelationsPerception as pro-business undermines investor confidence – the plan solvesIDF 15 [(Index of Economic Freedom) “Hong Kong” Country Rankings, 2015] AT However, the economy’s institutional uniqueness, enshrined in its exceptional commitment to economic freedom and a high degree of autonomy pledged by the mainland, has faded a bit. Although Hong Kong maintains the features of an economically free society, economic decision-making has become somewhat more bureaucratic and politicized, and the government’s administrative scope and reach have expanded. Recent political events appear to have undermined public trust and confidence in the administration. Hong Kong became part of the People’s Republic of China in 1997, but under the “one country, two systems” agreement, China promised not to impose its socialist policies on Hong Kong and to allow Hong Kong a high degree of autonomy in all matters except foreign and defense policy for 50 years. The critical issue today is the shape and form that “universal suffrage,” promised for 2017 by Chinese authorities, will take. Although the government controls all land in Hong Kong, the economy has benefited from its commitment to small government, low taxes, and light regulation. Major industries include financial services and shipping; manufacturing has largely migrated to the mainland. Hong Kong’s economy has become increasingly integrated with China through trade, tourism, and financial links. RULE OF LAWVIEW METHODOLOGY Property Rights 90.0 Create a Graph using this measurement Freedom From Corruption 75.0 Create a Graph using this measurement Hong Kong continues to enjoy relatively low rates of corruption, although business interests exercise a strong influence in the unicameral legislature and executive branch. Beijing’s heavy-handed efforts in 2014 to assert greater control from the mainland have galvanized pro-democracy sentiments. The rule of law is respected, and the efficient and capable judiciary remains independent. Property rights are well protected. LIMITED GOVERNMENTVIEW METHODOLOGY Government Spending 89.7 Create a Graph using this measurement Fiscal Freedom 93.2 Create a Graph using this measurement The standard income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The overall tax burden equals 13.7 percent of domestic income. Government expenditures amount to 18.5 percent of gross domestic product. Public debt is low, and a budget surplus has been maintained, but population aging and greater spending on social programs have increased fiscal pressures. 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