Public Finance of Hong Kong Flashcards
1
Q
Definition of public finance
A
a government’s revenues and spending
2
Q
Government needs to have —— to pay for its various activities. ——– refers to a government’s revenues and spending.
How a government ——- and ——– will affect
the citizens as well as the ——–
A
revenue, public finance, collects its revenue, spends its money, whole economy
3
Q
Major items of government spending in Hong Kong
A
- infrastructure
- education
- social welfare
- healthcare
- environment and food
- economic
4
Q
examples of government services/facilities of infrastructure
A
Constructs buildings, water supply
5
Q
examples of government services/facilities of education
A
Formulates policies, training and retraining
6
Q
examples of government services/facilities of social welfare
A
Provides social security and services for the elderly, children, poor people
7
Q
examples of government services/facilities of healthcare
A
Runs public clinics and hospitals, prevents infectious diseases
8
Q
examples of government services/facilities of environment and food
A
Protects and conserves the environment, ensures food safety
9
Q
examples of government services/facilities of economic
A
Monitors the financial system, preserves jobs
10
Q
Major sources of government revenue in Hong Kong
A
- land premium
- profits tax
- stamp duties
- salaries tax
11
Q
land premium
A
Money from land sales of land plots
12
Q
profits tax
A
Levied on profits from business in HK
13
Q
stamp duties
A
Levied on sale, transfer and leases of immovable properties and stock transfers
14
Q
salaries tax
A
Levied on salaries or pension from employment in HK
15
Q
According to article 107 of the Basic Law, the HKSAR shall follow the principle of keeping _______ within the limits of revenues in ____, and strive to achieve a _____, avoid ____ and keep the budget commensurate with the ______ of its ______.
A
expenditure, drawing up its budget, balance, deficits, growth rate, gross domestic product
16
Q
What is a budget?
A
a financial statement of the estimated revenue and spending of the government in a fiscal year
17
Q
what is a fiscal year
A
- a one-year period that companies and the government use for financial reporting and budgeting
- most commonly used for accounting purposes to prepare financial statements
- in Hong Kong, a fiscal year starts on 1 April and ends on 31 March
18
Q
types of budget + meanings
A
Balanced budget: Estimated government revenue is equal to the estimated government spending
Deficit budget: Estimated government revenue is less than the estimated government spending
Surplus budget: Estimated government revenue is more than the estimated government spending
18
Q
Rights in public finance of Hong Kong people
A
Hong Kong residents have rights to enjoy the services provided by the government free of charge or at a price below cost
19
Q
Responsibilities in public finance of Hong Kong people
A
Hong Kong residents have responsibilities to pay taxes so that the government has enough money to provide different services of residents
20
Q
The goals of public finance
A
- meeting people’s needs
- simulating economic growth
- reducing income inequality
21
Q
The goals of public finance: meeting people’s needs
A
The government can spend money to provide services for meeting people’s needs, e.g. education
22
Q
The goals of public finance: simulating economic growth
A
The government can spend more on education, infrastructure etc. to improve the competitiveness of HK. Foreign investors may be attached to HK when the productivity of HK is raised. Steady economic growth can thus be maintained.
23
Q
The goals of public finance: reducing income inequality
A
The government redistributes income from the rich to the poor by collecting taxes from wealthy citizens and using part of the tax money to provide services / welfare payments to the poor
24
services / welfare payments to poorer people in HK
- Recurrent cash benefits
- Non-recurrent cash benefits
- Means-tested in-kind benefits
25
examples of recurrent cash benefits
- Social security payments: Comprehensive social security assistance (CSSA)
- Other recurrent cash benefits, e.g. Financial Assistance Scheme for Post-secondary Students
26
examples of non-recurrent cash benefits
one-off measures e.g. additional provision of CSSA
27
examples of means-tested in kind benefits
Public rental housing provision, Elderly Dental Assistance Programme
28
groups of services / welfare payments to poorer people in HK
recurrent (e.g. CSSA) vs one-off (e.g. consumption voucher)
Cash (e.g. CSSA) vs In-kind (e.g. $2 transport fee consumption scheme / public housing)
Means-tested (e.g. public housing) vs Non-means-tested (e.g. student health service)
29
CSSA scheme
- provides a safety net for those who cannot support themselves financially
- designed to bring their income up to a prescribed level to meet their basic needs
30
The governing principle of HKSAR government
- Positive Non-interventionist approach in the market
- small government, big market approach
--> The government will generally not intervene, through subsidies and direct provision of services, the free market ; and when it intervenes, it does so only in ways that will make the economy more efficient, effective and fair.
-> exercising fiscal prudence
31
hk government's role in the economy
Hong Kong Government as a Regulator, rather than a Provider of welfare programmes.
32
Welfare States
Welfare = citizens’ right
(the right to economic welfare and security as a social citizenship so as to protect the dignity of being a human. It poses obligation for the government to protect their right)
33
Guiding principle of gov as a welfare provider
- equality of opportunity
- equality of opportunity
- equitable distribution of wealth
- public responsibility for those unable to avail themselves of the minimal provisions of a good life
34
Guiding principle of gov as a regulator
- Positive non-intervention
- big market small government principle
35
Gov as a welfare provider:
Perception on welfare
Coverage and comprehensiveness
welfare expenses
tax
Perception on welfare: Fundamental rights (social citizenship)
Coverage and comprehensiveness: cradle to grave
welfare expenses: huge
tax: high
36
Gov as a regulator:
Perception on welfare
Coverage and comprehensiveness
welfare expenses
tax
Perception on welfare: only for the needy as a safety net (need-based)
Coverage and comprehensiveness: limited
welfare expenses: relatively lower
tax: relatively lower
37
Fiscal Prudence （財政審慎）
- HKSAR government is careful and cautious in making decisions on expenditure
- Beneficial to maintain a balanced budget
38
Characteristics of taxation system in Hong Kong
Simple tax structure -> HK has few types of taxes, e.g. no sales tax
Low tax rate -> top income tax: only 15%
Narrow tax base →few types of taxes and small number of taxpayers
(excluded if income is low or eligible for many tax allowances)
39
Rationale behind the governing principle of HKSAR Government
- Key concern of being welfare states / welfare provider is the financial burden and financial sustainability for the government
- changing the low tax policy may undermine the competitiveness of HK
39
Positive outcome of the HK taxation system
-> encourage people to work harder to earn more
-> attract foreign investment, promote external trade
-> Improving competitiveness, provide a favorable business environment for rapid economic development
39
gross domestic product (GDP)
The total market value of all the goods and services produced by a country or region in a certain period, usually a year (annually)
--> In general, when an economy is performing well, people will buy more goods and services while businesses will produce more goods and services. GDP tends to keep increasing in this case
39
Unemployment rate
The percentage of the unemployed population in the labour force (labour force refers to those who are aged 15 and above + able and willing to work)
39
Economic structure
composition of an economy (income, employment, etc.) by different industries
40
types of industries
- Primary industry -> obtaining or providing natural raw materials for conversion into commodities and products
- Secondary industry -> converting the raw materials into commodities and products for the consumer
- Tertiary industry -> provision of services
40
Average Salaries of workers
Usually increases when the economy is good
-> when economic activities increase, companies need to hire more people to work for them. Companies probably offer higher salaries to attract people and retain existing employees to work for them
40
HK before 1842
- fishing village
- economic activities: fish catching, rice growing etc.
40
Economic restructuring
> The shift / change of economic structure from one type of industry to another
> e.g. from industrial-based economy to service-based economy
41
Important stages of economic development by major type of industry in HK
> Entrepot 轉口貿易港 (1900 -1950)
> Industrial city (1950 -1980)
> Service economy (especially finance) (1980 - now)
41
entrepot meaning
A port for importing & exporting goods
42
major economic activities in the entrepot stage of hk
> Goods shipped via HK: silk, porcelain, tea and other goods from China were shipped to Europe via HK.
> opium, from India to China
43
development of shipping industry in HK
caused by the growth in entrepot trade: need of boats & ships to transport goods
allow people to understand that “skills are important” --> later economic development of HK
44
Local industries during the entrepot stage
- Early industries in HK were small in scale
- Most of them were closely related to the entrepot trade and the shipping industry, such as shipbuilding and ship repairing
- Importance: prepared for industrialization of HK
45
industrialization
- Major industries in industrialized Hong Kong: Textiles, clothes, plastics, toys, wigs
- Other fast growing industries included electronics, watches and clocks, toys and wigs making
- All these industries belonged to the light industry.
46
Features of “light industry”
→ Light & Small products
→ Processing industries
→ Required some technology & skills
-> become more technology intensive as more machineries are involved
→ could be produced in small-scaled factories -> can be taken home to do, which became a family activity for some families, e.g. hand-made bracelets etc.
→ labour intensive / involved lots of manpower. Required low-skilled labour.
-> compared with nowadays more labour intensive
→ export-oriented; more consumer-oriented
47
Processing industries
raw materials imported -> processed in HK-> turned the raw materials into semi-finished goods or final products
e.g. textile industry -> textile mill in the 1900s
48
Export-oriented
manufactured for export in international trade market rather than domestic uses
49
Factors leading to Industrialization of HK
- Instability in Mainland China
- lack of demand for entrepot trade (push factor)
- favorable policies of the british colonial government
50
Factors leading to Industrialization of HK: Instability in Mainland China
Civil war in Mainland China → some industrialists fled to HK → influx of capital, technology, skilled labour, and entrepreneurs to HK → industrialization of HK
51
Factors leading to Industrialization of HK: Lack of demand for entrepot trade (push factor)
The Chinese Communist Party came to power in Mainland China and the Korean War → embargo against China by some Western countries and China also isolated herself and did not import
52
Factors leading to Industrialization of HK: Favorable policies of the British Colonial Government
Positive non-intervention policy → Free market, promoting industrial development with establishment of HK Productivity Council etc. and offering low-rent industrial buildings in the 1960s
53
how did HK turn into a service economy
In 1970s, 70% of HK production was based on light industries, the economy then extended its base to other areas of industries in 1980s
→ instead of focusing on one type of industry, extended its base to other areas of industries → extension of economic base instead of just making things, more hotels & restaurants were opened
54
Financial services in HK
- HK Stock exchange in 1980s
- An industry which manages financial products and services
- Through various financial services, capital is transferred from its owners to those who need it; financial services enable the flow of capital and boost economic development
55
common financial industries in HK
- banking services
- securities trading
- insurance business
56
tourism industries in HK
- peak tram
- hotels
- real estate-related services
57
Industrial relocation due to Regional competition from Taiwan, South Korea, and Mainland China
- China’s opening up policy → foreign investment was encouraged → manufacturing industries moving northward because of cheap labour, land and lower production costs.
- production costs in Taiwan and South Korea were lower → shifting of light industries to other areas of Asia → decline of manufacturing in HK
58
Higher education level due to nine-year Compulsory Education in 1978
→ expansion of post-secondary education
→ supply of labour with higher education and skill levels for the services, e.g. financial sector
59
effects of shift towards service economy in HK
- Industrial relocation due to Regional competition from Taiwan, South Korea, and Mainland China
- Higher education level due to nine-year Compulsory Education in 1978
- Better living standards due to economic success in the 1970s
60
Better living standards due to economic success in the 1970s
→ rise of middle class -> higher purchasing power
→ increasing local consumption and demand for services and luxurious items
→ rise of more service industries and more people were employed in the service industries
61
Advantages of doing businesses in Hong Kong
- favourable time zone and geographical location
- well-established business networks and availability of professionals and supporting services
62
Advantages of doing businesses in Hong Kong: favourable time zone and geographical location
- HK shares the same time zone with Beijing, Shanghai, Singapore, Taipei, Kuala Lumpur, Manila, and Perth
- Tokyo, Seoul, Bangkok, and Jakarta have just
a one-hour time difference with HK, maximizing opportunities for mutually convenient engagement with Asia’s key markets.
- HK is efficiently located within four hours of flying time from the region’s key financial markets, and it is less than a five-hour flight from half the world’s population
- HK enjoyed the Unique advantage as “Gateway to Mainland China”
63
well-established business networks and availability of professionals and supporting services
- Hong Kong Stock Exchange was founded early in the 1890s.
- With China’s opening up policy, China developed business and trading relationships with other countries while HK acts as a middleman and connected the mainland with the rest of the world.
- Many multinational corporations and investors who were eager to invest in China used HK as the base for their business expansion into the Mainland market. Regional headquarters were set up in HK
- HK has a well-developed financial industry, many Mainland enterprises have been listed and raised funds in HK
64
HK government's role
Employing the policy of non-intervention (a “big market, small government”) and allowing free market
No foreign exchange control and low tax policy
→ favourable business environment -> attraction of investment in the service sector
65
Characteristics of being an international financial centre
Frequent international capital flows
> Has a large market scale and frequent financial activities
Internationalization of the financial market
>Is highly globalized and it houses large corporations around the world
Free and open market
Huge variety of investment products
Financial industry as an important industry
> Financial industry accounts for large proportion in GDP and labour market
66
Characteristics of being an international financial centre: Free and open market
>With free flow of capital without trade restrictions
>with free flow of information allowing firms to obtain the latest market information
67
Characteristics of being an international financial centre: Huge variety of investment products
>Provides different investment markets and production types
>Sound financial and regulatory systems
Orderly operation of the financial market is maintained
68
Describe the distribution of working population by industry in HK between 1971 & 2001
- Decreasing proportion of manufacturing from 47% to 12% by 35% between 1971 and 2001
- Increasing proportion of wholesale, retail, import & export trade, finance and real estate, transport, storage, and communication etc. From 30% to more than 50% by more than 20%
-> change in major industry: Manufacturing was the major industry in 1971 but it was replaced by wholesale and retail, finance and real estate etc. service industries.
69
Four pillar industries in HK
Financial services
Trading and Logistics
Producer and Professional Services
Tourism
70
What is wrong with the financial industry in HK
Hong Kong relied heavily on the financial industry. This hinders the development of other industries and slows down the pace of further economic restructuring. HK’s development in scientific research and literature lags behind that of other Asian countries
71
What is wrong with the financial industry in HK
- financial industry is highly sensitive to the economy
- HK being an externally-oriented economy, the operation of the financial industry relies heavily on external capital
- HK economy is likely to fluctuate significantly due to changes in the external economic environment
- active enough in terms of innovation.
- a high price level and an unimproved environment
--> may lose when competing with Shanghai and Singapore in attracting innovative talents.
72
Potential solutions of HK
- Treasure the Closer economic cooperation with Mainland China
- Boost HK’s R&D capability
- Reconstructing from a service economy to a knowledge-based economy
73
Potential solutions of HK: Treasure the Closer economic cooperation with Mainland China
- Strengthen HK’s long-standing-advantage to grasp the opportunity offered by the Belt & Road Initiative
- To be a super-connector between Mainland and the rest of the world with provision of e.g. financial and legal services
- Combining HK, Macau and the cities of Guangdong’s Pearl River Delta to a world-city cluster. To have Better coordinated development to avoid competition, complementing one another in capabilities and resources.
- Reinforcing HK’s status as international financial, transportation, trade & professional services centre
- Collaborating with Mainland China in Innovation & Technology (I&T) development
74
Potential solutions of HK: boost HK's R&D capability
- Formulating holistic policies relating to innovation and technology
- Developing Smart city
- Strengthening Science, Technology, Engineering and Mathematics (STEM) Education to build up human resources
- Increasing investment on R&D and support to start-ups
75
Knowledge-based economy requires
Labour/Human Capital with:
Professional skills esp. On technology
Generic skills esp. On creativity
Good educational background
Rich working experience
And high level of
Technology and Creativity
76
six emerging industries in HK
Education services
Medical services
Testing and verification services
Environmental industries
Innovation and technology
Cultural and creative industries
77
level of productivity
sets the level of prosperity that can be earned by an economy, which in turn are the fundamental drivers of its growth rates.
78
Competitiveness
the set of institutions, policies and factors that determine the level of productivity of a region
--> A more competitive economy: likely to sustain its growth over time
79
Indicators of competitiveness
The 12 Pillars of Competitiveness, including:
- Infrastructure
- Health and Primary education
- Higher education and training
- Technological readiness
- Innovation
80
The 12 Pillars of Competitiveness: health and primary education
Health: a healthy workforce enhances work efficiency and productivity (less loss due to sick leaves)
Primary Education: Basic education increases the efficiency and productivity of each worker with skills (basic skills for productivity)
81
The 12 Pillars of Competitiveness: Infrastructure
transportation and telecommunications networks
82
The 12 Pillars of Competitiveness: Higher education and training
more professionals who can adapt to the changing economy
83
The 12 Pillars of Competitiveness: Technological readiness
Adoption of existing technologies can enhance the productivity of industries
84
The 12 Pillars of Competitiveness: Innovation
move toward higher value-added activities (higher-value added cutting edge products)
