C. S. 0.
M. P. 297)
-93
the increase in the tax, it is, of course, impossible to prove either way. It is at least probable that this heavier tax-burden has added to the effects of the present depression.
But whatever the cause or causes,
the economic conditions of the Colony ve become decidedly worse since the crease in the Assessed Taxes was made in 1930.
Rate Too High
The Hon. Colonial Secretary has spoken of the difficulty, which the Treasury has experienced during the present slump, in the collection of rates. He further pointed out the in- creased administrative work entailed, leading to increased staff and, there- fore, greater cost of administration. I trust I may not be accused of giving countenance to delay in payment of taxes, if I say that this difficulty: arose not because property-owners do not like to pay promptly as in better times, but because they are not in a position to do so. Increased difficulty in the collection of a tax is evidence that the tax is being levied at a rate which is unduly high, and should therefore be lowered.
I have heard it said, time and again, that Hongkong is lightly taxed in comparison with other places. I do not agree with this view. In the special conditions of Hongkong, with a large migratory population, a com- parison of tax-burdens per head is no guide to policy. A maintenance of tax-burdens beyond the amount exped- ient in view of our peculiar conditions, would mean, in Hongkong's case, a loss of population and an ultimate loss of revenue.
It seems to me that the time has now come, it is not already overdue, when a strong stimulus to a revival of confidence and prosperity is needed, and that such a stimulus eculd best be provided by the reduction I now pro- pose.
It may be considered by some that a lowering of the Assessment Tax would benefit only an interested sec- tion of the public. I dissent from this view which, no doubt, is based on a wrong conception of what the Assess- ment Tax means in the public finance of the Colony. This tax is the chief mode of direct taxation for Hongkong, and must be recognised as such. It provides the main contribution to ad- ministrative costs from the income of the community. Its incidence is not to be considered as determined by the visible process of its collection. Like the Income Tax in Great Britain, it is the principal medium whereby taxation is adjusted to governmental needs. When considerable increase of revenue is required, the normal method is to raise it; when a re- mission of the burden of taxation is called for in the interests of the comTM munity, the lowering of this tax is the natural medium of relief.
Buyers Scared.
There may exist in some quarters a doubt that a reduction of the Assess- ment Tax by 4 per cent. would have material influence on our
economic situation, in view of the disparity be- tween this comparatively sinall per- centage and the very large percentage of fall which has taken place in pre- perty values. But a mathematical comparison of percentages is here no true criterion. Psychological factors,
induced
by
uncertainty and the
absence of ameliorative action will drive values down far below the level justified by the true economic situa- tion. People simply will not buy at however attractive a price-not be cause the property offered is not worth the price, but because they are so uncertain about the future. A moderate stimulus, removing or allay- ing this feeling of uncertainty, will do much more to restore value than a mere mathematical computation would lead us to anticipate. No one would argue that the effect of lowering the British Income Tax by sixpence could be reckoned as stimulating trade and industry just to the extent of 21⁄2 per cent. The effect, largely acting through psychological forces, has been far greater, as we all know
But even the financial effect of a 4 per cent. reduction on the economic life of the community would be very considerable. Taking the total rate- able value at $38,941,000, the reduc- tion would mean that the property- owners' burden is lightened by about $1,550,000. This figure represents a 6 per cent. yield on a total of $25,000,- 000. In other words, there would he a capital appreciation of real estate values in the Colony to the extent of $25,000,000.
Appreciation In Values.
of reducing or paying off mortgages pose of carrying on their business or!
This condition when forced to do so. is further accentuated by speculative the property market would help to re- influences. A favourable reaction in
move certain of the factors depressing the share market, particularly in re- lation to shares of real estate com- panies. This would further help in restoring confidence in the established industries of the Colony. Experience shows that there is always a correla- tion of movement between property values and stocks values Colony, though the two movements may not synchronise.
in
this
Advantage To Business. Rent charges form a considerable proportion of the costs of many of our small businesses. A small reduction in this item of his costs may mean all the difference to a small tradesman when he is hesitating whether it is worth while to carry on. Property- owners who at present find it difficult, if not impossible, to make concessions of this kind, would be enable to do so, with a lighter Assessment Tax bur- den, and would find it in their interest to pass on part of the relief obtained. The rate of mortality among small businesses, involving in the mass a serious loss to the Colony, would thus be checked.
On the same computation, the With the return of confidence and estimated decrease of $660,000 in hope created by Governmental action Rates from the change in the method promising such a substantial measure of assessment would mean an ap- of relief, with the assurance that preciation in real estate values of over Government was not adopting the $10,000,000.
laissez-faire policy of leaving recovery Thus, if the second and third sug-to find its own way, hoarded money gestions made in my second memoran- would come out; property would once dum were adopted, property values in more change hands; credit would ex- the Colony would at once appreciate pand as confidence expands; existing by the enormous figure of $35,000,000, business undertakings would be main- and the repercussion on the economic tained; and so an all-round improve- situation could not but be considerable. ment may be expected. The structure On the other hand, the adoption of of the present-day economic system is the two proposals would mean a such that its various parts are inter- sacrifice of revenoue to the amount of dependent, a favourable movement in about $2,200,000. This sum is made any one quarter being generally re- up of $1,550,000 (being 4% of $38,- flected in similar movements in other, 941,000), and $660,000 (being estimat- quarters, so that the amelioration be- ed loss entailed by the new method of comes cumulative. assessment). This is admittedly a
Use Of Surplus. considerable sum, and would further Now, how is the loss in revenue to greatly widen the gap between be made up, if the two proposals were estimated revenue and expenditure. carried into effect? Happily, this is Nevertheless, I urge my suggestions not a case in which an unbalanced on the Government without hesitation Budget entails an increase in public and with a full sense of my respon- indebtedness. The increased deficit sibility, for it is my firm conviction could, and should, I submit, be met out that in their adoption will be found one of the Colony's reserve. The surplus effective means of improving the of the Colony, it is true, is already present situation.
being substantially drawn upon to
One of the chief indices of the depth balance the Budget for 1935 put that of the economic depression is found in very fact makes it clear that the the property values which have Government is not averse. to an en- fallen to an enormous extent. A fall croachment on its surplus to enable in such values is not an effect merely, it to balance a Budget in difficult but is also a further predisposing times. If, as I have endeavoured to. cause of depression, owing to the de- show, the suggested remission is ex- pendence of every line of business pected to act as a stimulus to the upon every other line. Any measure, Colony's business and economic out- therefore, which is calculated to check look, then the policy of drawing on further depression in the property
our surplus to meet this particular market, if not to stimulate it to new deficit would be all the more justi- activity, is a measure which will dis- fiable, since it would be done for the
not business as a whole. tribute its beneficial effect throughout purpose of pursuing, a merely negative policy, but a positively re-
depressed condition owing to the nor-
The share market is in an unduly medial ecurse of action. mal effect of bad times in which many in order to raise money for the pur- are compelled to sell their holdings
.i.
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