The political economy of the HKSAR's fiscal policy

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Political development in the HKSAR, Page: 165-182

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Cheng, Joseph Y. S. (1949- ...).
City University of Hong Kong; City Univ. of Hong Kong
book description
For decades, the government of Hong Kong enjoyed huge fiscal surpluses. Only rarely did Hong Kong register a fiscal deficit. The natural questions to ask, following this observation, are: where did the surging revenues come from, and can such huge revenues be expected to continue indefinitely? It is the thesis of this chapter that the Hong Kong government, during the decade immediately preceding the handover, raised much of its revenue through land rent and inflation. The land rent was collected as land premiums which were collected though land auctions, rates, and other land-related revenues. The inflation tax was also raised directly by imposing higher fees and charges, and indirectly by fueling inflation expectations, as the government had increased Hong Kong people’s demand for property investment to serve as a hedge against inflation. This has contributed to higher proceeds in land auctions and high amounts of land premiums collected. While I would not say that the government has a “high land price policy” as many commentators claim, I have criticized time and again the government’s inflationary ways as highly dangerous and ultimately unsustainable. In this chapter, I also argue that the Hong Kong Special Administrative Region (HKSAR) government’s mishandling of its housing policy has aggravated the inevitable fiscal crisis deeply and has left a trail of bankruptcies and bad debt that will take years to clean up.