Collecting the Rent in Hong Kong

Georgists often like to point to Hong Kong as a successful example of funding a community’s needs from economic rent.  The result is a prosperous and (relatively) free city, a magnet for immigrants.  But our information is old, and numerous changes have happened since the transfer of power, from UK to PRC in 1997.

So I was pleased to spend a bit of time this afternoon with a Hong Kong native, who now lives and works in Chicago.  Not familiar at all with Henry George, not even interested in political philosophy as far as I could tell, but able to speak with me about current economic conditions.  If I have any errors below, I trust that someone will correct me. The good news is that the land still belongs to the people, or more precisely to the Hong Kong government, and the people pay no income, sales, or value added taxes.  Apartment owners (and everybody in Hong Kong lives in an apartment) pay what amounts to a tax for the use of land.  They have security of tenure, however there is a mechanism for redevelopment.  When a parcel is designated for future redevelopment, then, as occupants move out and sell their apartments, the new owner’s deed provides that s/he may be displaced for rebuilding.  Once 90% of the apartments have turned over, the remaining occupants are subject to compulsory purchase of their right to remain.  (Evidently this is a slow process requiring long-term thinking on the part of the authorities.)

Once the building is ready to be replaced, developers bid on the right to develop the parcel.  The winning bidder erects a much taller building– which will be subject to the same process, decades in the future.

Despite the favorable policies, however, the cost of living is high relative to wages (or, put another way, the real wage is low), and both members of a typical couple must work in order to support the family.  The stated cause is the inclusion of Hong Kong into China as a special administrative region (SAR).  HK residents have certain privileges, including permission to travel abroad and to live in other cities in China.  Mainland Chinese are permitted to move to HK, but only if they “invest” an amount equal to about US$1 million in the area.  That investment apparently can be an apartment, and the movement of rich folks from the mainland has driven apartment prices up (reportedly as high as US$10,000/sq ft!).  It’s common for housing to cost 50% of income, in response to which the HK government has constructed quite a bit of “affordable” housing.

At the same time, HK workers compete with mainlanders, whose salaries are much lower.  (True, HK is an urban/trading center, unlike much of China, but Shanghai  might have similar capabilities.) The result is downward pressure on wages along with upward pressure on working hours.

So is “free trade” causing the decline in real wages?  Or is the problem more due to wealthy mainlanders purchasing “rights” by moving to HK? It would be interesting to look at the figures, see how much economic rent the HK government is collecting and where it goes, and learn more about the competitive situation vis-a-vis the mainland.

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One Response to “Collecting the Rent in Hong Kong”

  1. Cliff Cobb says:

    The claim that substantial economic rent is collected by the government of Hong Kong is not substantiated by the facts. The Hong Kong Internal Revenue Department publishes revenue figures online at http://www.ird.gov.hk/eng/abo/rev.htm. They show that 50% of revenue comes from a profits tax, another 22% from a wage tax, a total of 10% from taxes on estates, betting, business registration, and personal property. About 18% comes from the stamp duty, which appears to be a tax on property transfers, including sale of stocks and bonds. Perhaps some of the fees you ascribe to apartment owners are in fact stamp duties. Less than 1% of total government revenue comes from the property tax.

    In understanding Hong Kong’s prosperity, we would need to know more about the history of how government was financed, not just a snapshot of today’s revenue structure. It is my understanding that Hong Kong avoided taxes for many decades by financing government out of the sale of land. If that is the case, this fits more closely with the idea that government has been financed from increasing land values.

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