Hong Kong ranks among the places with the lowest tax rates in the world - and may have the lowest, Financial Secretary John Tsang says, in response to calls to lower profits tax and introduce more deductions.
Speaking on a radio phone-in show this morning, Mr Tsang stressed that other cities with low profits taxes often had goods and services taxes, and other forms of taxes. If Hong Kong cut its profits tax, or other tax rates, it would have to cut its services, also.
Introducing more specific tax deductions, such as one for school fees, was not necessarily a good idea, he told callers.
To maintain a low and simple tax regime, he said, there are "pretty generous arrangements" for overall deductions. In the past, about 5% of taxpayers paid standard rates; now, only about 2% do.
When asked whether he was being too cautious in his 2014-15 Budget proposals, Mr Tsang said he was being responsible to avoid a structural deficit in future.
"I don't think there is such a thing as a perpetual surplus," he said, noting he had set up the Working Group on Long-Term Fiscal Planning to look at issues that would affect Hong Kong's economy through to 2041.
The group projected that if the rate of spending continued to expand beyond the growth in revenue, there would be a problem. The group will reveal more details at a press conference on March 3, he said.
"We don't have public debts per se and we want to keep it that way," he added.
To do this, the Government will need to grow the economy in different ways. Since ours is already a mature economy, though, we cannot expect double-digit growth, he stressed.
"We need to safeguard our current income, and put our house in order."
To do this, the Government will chase after tax cheats, and look at its expenditures to see where there are duplications or unnecessary services that could be cut.
Asked whether the Government should consider a consumption tax, he said the idea had been considered in great detail.
"The conclusion was that we need to expand the tax base, but a consumption tax is not something that we need at this time. It would be annoying to the retail sector, and any new tax would be controversial," he said, adding it would also drastically raise the administrative costs.
When callers asked why he had not done more for the middle class, Mr Tsang noted that one-off relief measures represent about 5% of expenditure. More than half are tax deductions, and about 30% are for rates waivers.
"The great majority has largely been enjoyed by the middle class," he said.
Spending on services for education, social welfare and healthcare increased 7.8% over last year, he said, noting that the middle class can enjoy all those services.
In response to a caller's lament that some lawmakers had prevented a higher tobacco tax hike than the proposed $2 per cigarette, Mr Tsang said he was "hugely supportive of using taxes to reduce smoking incidence".
"This has worked in the past and we need to be vigilant in future. This tax is for health reasons. If we were successful, we would hope we don't receive another cent in revenue for the government."
He said he would keep communications open to see what could be done in future.
