What's the Best Option for Hong Kong? 商品及服務稅的"利與弊"?

After a week's analysis, the writer finally come to his conclusion: Goods and services Tax is not the only possible solution,but the Best and fairest option for Hong Kong!
The best option , in the residents' view, of course is no need to pay any additional tax or even decrease the current tax rate. However, in the government's view or the view of the future community, it is not! To ensure her resident can continue to enjoy the social facilities, the social welfares, the cheap education and medical fee, the income of the government must be maintained or even increased. Broadening the tax base is a must.
In these few days, we can easily hear that a lot people come out and oppose the GST. Here, let the writer sum up some of their reasons:
a) It would bring a more difficult living to the low-income individual or family as they need to pay tax since then.
b) With GST, the cost of shopping would be higher, tourism would be badly affected. Tourist number would decrease, lots of shops would find difficulty in running their business.And thus HK economy would become poor.
c) It is costly to setup the system ( it is now estimated as 0.5 billion), as the efficiency of GST is still a question!
d) Investing environment may thus be affected; Hongkong may lose her position as the international financial centre.
Well, we cannot just look at the surface!
First, the writer think GST probably would not affect the current life of the low-income group including those under the protection of Comprehensive Social Security Assistance and those who are not. It is because the government would give them upfront,one-off supplement or allowance in order to compensate for GST's impact. You may argue that the proposed allowance announced now may not fully compensate for its impact. But do not forget, it's just the beginning of the consultation. In the writer's view, the government would finally give a greater allowance to this group if much of the people have this request and if the government really want to carry out this policy. So, people in the low-income group, don't worry!
Second, would GST really bring a decrease to the income from tourism? Frankly, the writer cannot confirm to say a "yes" or "no" because it depends. If the GST was set very high, Hong Kong's competitive and her tourism would of course be badly affected. But if the GST is relatively low and refund scheme for visitors is carried out together, even there is bad effect from GST, the effect would be small. Now, for Hong Kong's case, the GST is only set at 5% ( which is the same as that of Japan, Singapore, but lower than Australia and South Korea). Tourist who buys things over HKD$1500 in the same shop can get refund. Therefore, tourism in HK would not greatly affected. Moreover, as every one knows that the tourism is one of the main incomes of Hong Kong, would the government do such silly thing to attempt suicide? One can think about the answer.
What comes to our third, GST's ultimate use. We cannot deny that the initial cost for implementation of GST is quite expensive, but we should know that once GST is carried out, it will last for a long time. Its main ulimate use is not to increase its tax income but just to enhance and maintain the stable tax income for the government. As the againg problem could not be solved in the short future, number of labor force and salary tax income for the government would therefore decrease and become unstable. What make us concern most is that the government still need great financial support to settle the aging problem, even her salary tax income is decreasing .Since GST is independent of wage of the resident or the labor force, it would therefore give a good support for the government's expense on medicine and building elderly houses. With its long-run and important ultimate goal, the initial cost of GST is not worthless.
Fouth, investing environment will not be affected! Why? We can just look around the other financial centre in the world like US and Japan, their example in implementing GST tell us that GST is not that horrible. In addition, the Profits Tax, Property Tax will be cut if GST is carried out in Hong Kong.Some credit rating financial institutions also agree to carry out GST in HK because it brings the government a stable and healthy financial support.
GST is not the only option! If there is no GST, in order to maintain the government stable and healthy income, the government can greatly increase the salaries tax, or greatly decrease in the personal allowances. If so, as the consultation document said, nearly all the salary earners(even those who do not need to pay salary tax before) would be brought into the Salary Tax net. Moreover, this method cannot tackle the aging problem. When aging problem become more serious in the future, the labor force and salary tax will drop but the expense for aging problems (mainly the medical and living expense) will increase. The government would face a very difficult financial situation.
All in all, GST is not the only option for us, but after consideration of different levels and with different refund and allowance schemes, it would be the best option for HongKong and for our elderly life!

Disappointed Regional Politics 地緣政治，令人失望

When the five veto-wielding Security Council mebers including US, Britain, China , Russia and France still do not make a conclusion on the resolution to respond against North Korea for his seven missile test on 5 th July,2006, on the other side of the world, Israel attacks her neighbour country Lebanon. As an investor, the writer feels very disappointed about this kind of investing environment! A lot of questions will come to the investors' brains: Will US or Japan start a war against North Korea? Will North Korea continue make its missile test or even make a nuclear bomb? Will the middle-east situation be uncontrolable? Is the oil supply from middle-east countries still stable?
So, wt's the result?
NYMEX Augest Crude oil Future price rises to US $78.40, October Future price reachs US $80.05. Nearly all the market indexs in the world fall down by about 1-2% on HongKong time 14th July,2006.
As the writer mentioned in Oil Focus I, the limit supply of oil is generally digested by the market. Where the fluctuation of oil comes from is the troublesome political matters. These two week's political unstability have already given more than enough evidence or say supports for the raise of oil. At the same time, many investors short out their stocks holdings in the financial markets due to their worries about high oil price and unstable regional situation.
(What's more, Japan announces to raise the interest rate from 0% to 0.25% today so as to compensate the inflation. It is expected that this action would lead to the decrease of global liquid cash. The financial market may face a little shock as a result.)

OiL Focus II: 石油多面睇 II

After getting understand on the basic reasons for the high pricing of oil, some of you may immediately want to ask: What are the great effect of high oil price to our economy? And what's more important: the ways to minimize this problem.
Basically, the first way the high oil price affects us is the cost of transport. No matter you are living in US or UK, Hong Kong or Mainland China, Japan or Korea, you must find that your traffic cost become more expensive (except you are living in middle-east or other oil rich countries). Sometimes, when the oil company announced to raise the fuel (mainly petroleum and LPG) price by coming mid-night, you may even find a long line of vehicles waiting outside the oil stop for cheaper refills at that night. You can imagine how great effects the oil bring to the people's living! However, it's just the surface of the matter...
With increase of oil price, the cost of production of many manufacturing industries would increase. Since oil has multiple function, they can be used to make plastic,dyes..etc. The industries which makes plastic-related product would face a higher production cost. Even some industries do not make oil or plastic related product, they would also need to face the higher exportation cost when they export their products to other places. But the merchant are not fools,when they face higher cost, they would simply transfer the cost to the consumers. So, what's the result? Nearly all the things you want to buy become more expensive when you compare to the last two years. And that's the inflation!
Inflation caused by high oil price, would bring our economy to a undesirable situation, HIGH natural unemployment rate. It is because when the companies maintain constant nominal wage given to their worker, their workers are however facing higher price in their consumption, the real wage to them are decreasing. If the real wage continue to decrease, more and more of them would leave the job, higher unemployment rate results. If we assume the production factor of each labor is unchanged before and after the inflation--say, one labor can make one unit of product, the increase in natural level of unemployment would lead the same amount decrease of output. GDP would therefore go down.
Crude oil, the energy source that brings convenience to us, also brings trouble to our economy. Though the technology is improving, we cannot escape from using oil as out main energy source.To minimize its effect to us, the most possible ways are reduce and recycle. For reduce, we can simply take more public transports instead of driving our own cars. For recycle, people can take used bottle or plastic bag to recycle bin or recycle stop instead of throwing them on the streets or rubbish bin. Only through this way, can the demand of oil and thus its price become stable or even be decreased. Frankly, either reducing or recycling would bring us inconvenience. However, before the new energy like ethanol can be widely used, in order to minimize the oil effect, we should take care of the importance of conservation.

OiL Focus I : 石油多面睇 I

Oil, the most common energy source nowadays, plays an extremely important role in the economy of the world! We cannot excape from using it due to its multiple functions. With oil, not only can people drive a car,ship or plane, they can also use it to make plastics,lubricating oil...etc. Without oil,human's activities must be poorly affected. However, oil is not cheap! Its price even raise a lot during these two years.
This week, the writer will deeply explore into the matter of it: Why is the oil so expensive? Will the oil price get sharp increasement continually? How can the oil affect the world's economic and financial market? What are ways to minimize the effect of it?
On 8th July,2006,the Augest crude oil future price is US 74.09, which is quite expensive to the common people,compare with US$28-40 two years before. How come the oil become so expensive? To come to the answer, we should understand the supply and demand of it:
Oil or Crude oil is known as a kind of fossil fuel. It is formed from the dead animals,plants and marine lifes million or billion years ago. When these animals or plants died, they were covered by the mud. With the high pressure, temperature and bacteria actions, they finally become today's oil or natural gas. As this process take a long period of time,oil supply is very limited. Many scientists even think that the oil will run out in the coming 30-40 years.
Even so, people cannot limit their demand on oil. As mentioned above, the crude oil can be seperated for multiple purpose. Other than the car fuel, the plastic cup, the water pipe you used are also made of oil. Its demand also has a trend to increase due the need of manufacturing industries in some developing countries like India and China.
With incresing demand, but limited supply, the oil price would be expensive. However, the oil price is already over US$70, would it raise up contiually when the supply of oil becoming less and less? The writer does not think so! The reason is that the limit supply of oil is being known in the market, the investors have already reflected their information about oil on the financial market. Therefore, without other special news on the oil like oil war, political problem in Iran, Iraq and other Middle-east countries,or greatly increase in demand by China, the oil price would not have a sharp increasement even the oil supply become smaller. Of course, there is an exception case: The institutional investment, because they may not need to reflect any market information!

Interest rate II: The time BEFORE and AFTER the raise of interest rate 息口系列二： 加息前後

On 29th June, US finally announced to raise interest rate by 0.25 percantage points. Today, the writer want to talk about what happens to the financial market at the time before and after the interest rate was raised.
First of all, before talking on it, let's ignore the time, and just discuss on the effect on the raising of interest rate!
To the stock market, as the interest rate is increased, the cost of investment (either the cost of borrowing money or the opportunity cost from losing interest in saving account) would increase. Thus, it would normally led to less investment on the stock market. Some investors would leave the market and therefore the stock would face a great shock.
To the currency market, say the US currency, as the interest rate of holding US dollars increase, many people would like buy and hold US dollars compare to those foreign currency of which the interest rate hasn't be raised. As a result, the US currency would appreciate while others depreciate.
Some of you may say "What!? How come today's stock market rebound so much just after the US Fed made its announcement on raising interest rate?" Yes, you are correct! This comes to our topic today.
As mentioned in INTERST I, before the announcement of US fed, the writer and many other investors have already predicted the raise of interest rate. When investors have made their prediction, they would immediately reflect it on the market. For the stock market investors, they would leave the market or take profit first, and therefore led to shock in stock market. For Currency market, just opposite as mentioned above.
However, after the announcement of US Fed, as the raise of interest rate by 0.25 %pts is already under the expectation, the market no need to make another adjustment on it. Instead, if the US Fed does not raise interest rate or raise too much which is out of the expectation of the market investors, both the currency and stock market would change. This time, since the term used by US fed is comparatively gentle, and the market expects the US GDP growth would deccelerate, thus the pressure of inflation decrease and the stock market rebound!