Tomorrow is Budget Day in Hong Kong. Overshadowed by recent events, it is expected to be a non-event with few surprises despite the rapidly improving budgetary situation. That hasn't stopped the ongoing bleating opposing a potential sales tax. While such a tax will broaden the tax base, allow for reductions in other taxes and prove a more stable source of revenue than relying on property sales and investment returns, a not suprising 90% plus of retailers oppose it. They commission a survey which found a majority of tourists will "mar Hong Kong's reputation as a top shopping destination" and many retailers fearing a big drop in sales if such a tax were introduced. Half of the 205 tourists surveyed said they would spend less if they were charged sales tax.

It is like asking turkeys their views on Thanksgiving. Will people really stop buying goods because of a 5% sales tax? Perhaps at the margin. But it would spark a sales boom before it was introduced. Indeed the Australian experience saw a spike in pre-GST sales, a brief drop and then strong retail sales growth as the benefits of lower income taxes meant consumers had higher disposable incomes. As for the tourism aspect, Hong Kong has stopped competing on price as a shopping destination a long time ago. Now it offers a wide variety of top stores within a compact, first world setting. This combined with Hong Kong's many other charms will mean a sales tax will have very limited impact on tourism. More important is good service and products. If the difference between a tourist coming to HK or not is 5% of the price, they aren't the kind of tourists HK wants or needs. What the retailers also forget to mention is most sales tax regimes refund sales tax to travellers.

There are legitimate reasons to oppose a sales tax. It is regressive so it needs to be have some compensation for the poor. Administration can be an issue. The Government will need to decide if prices are displayed pre- or post-GST and their will be confusion and fraud during the changeover period. What the retailers have proved is surveys can be made to say anything. Have you ever seen a special interest group with a survey that didn't bolster their case? The surveys aren't worth the paper they are written on.