February 28, 2006

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Wooly thinking Part 1

The letters page of the SCMP can be a dangerous place. Take this rant from today's paper:

I am fed up with hearing the refrain that many people fall outside the direct tax net (82 per cent of the population, says Hong Kong General Chamber of Commerce chief executive Eden Woon Yi-teng; 42 per cent of the workforce, says Post columnist Tom Holland).

In fact, most of the workforce pays indirectly by being deprived of decent salaries and because there is no minimum wage. They also indirectly pay rates (if they rent public or private units) as well as tax. Yet they have as much right to a democratic life as Mr Woon. These are people who do not get the huge bonuses paid to company directors, nor do they have very high salaries and benefits, such as the pensions of senior civil servants. They are the poor, who work for little, contribute hugely to the economy and have little to show when they retire without a pension. Their homes are often small, they have to apply for education waivers and may yet face the prospect of applying for charity for health care, if hospital charges rise.

They will not be able to afford health insurance, for which taxpayers may get tax breaks, nor will they get tax allowances for children and housing. Our financial secretary showed much more concern for the "haves", that is, the Liberal Party voters, than the "have nots".

Mr or Mrs Name and Address Supplied manages to get so much wrong in such a short space. Ask a first year economics student about minimum wages and they will tell you that artificial floors on price (wages are the price of labour) can prevent an equilibrium developing. In English that means that a minimum wage means some people who would be prepared to work for less than the minimum will be prevented from doing so, and employers who would employ such people are also prevented from doing so. You have the supply, you have the demand, but the minimum wage prevents the two from getting together. Even stranger is the idea that the poorly paid "contribute hugely to the economy". Whether you like it or not, our society measures contributions to the economy in an extremely effective manner - money. The poor don't get tax breaks for health insurance - they get free access to great public hospitals. They don't get access to allowances for children and housing because they don't pay income tax and live in government subsidised housing. It seems apt to quote new Hospital Authority chief Shane Solomon:
Speaking at an impromptu media gathering at the authority's headquarters Monday, Solomon said one of the things that intrigued him was that Hong Kong has a low tax policy and a highly subsidized health-care system at the same time.

"Of course, my view is superficial at this stage, but from observation it is a country with very low taxation and a highly subsidized health system ... a bit unusual," he said.

The common fallacy is that tax cuts favour the rich. In fact, tax cuts favour those who pay the most tax, which funnily enough happens to be the rich. The poor do it tough - silly stuff like this letter won't make things any better.

posted by Simon on 02.28.06 at 08:47 AM in the Hong Kong category.


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Great post. Totally agree with your points, even as a non-economist.

What really intrigues me though is Solomon's comment. Some might even think that it indicate something about how his tenure is going to be run...

posted by: The Dustless Workshop on 02.28.06 at 03:52 PM [permalink]

Of course, asking a first-year economics student is about as effective as asking your local fairground fourtune teller to gaze into her chrystal ball. Economics, as a science, is at least as credible as astrology.

Well, maybe not quite.

posted by: Argleblaster on 02.28.06 at 03:59 PM [permalink]

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