Study Notes: Public Finance of Hong Kong

👋 Hello! Let's Explore Hong Kong's Money!

Have you ever wondered who pays for our beautiful parks, big libraries, and the clean streets we walk on? Or how our teachers and the police get paid? The answer is Public Finance!

Think of it like this: You have pocket money. You decide where it comes from (parents, red packets) and how you spend it (snacks, games, saving). Public finance is the same idea, but for the entire city of Hong Kong! It's how the HKSAR Government manages its money.

Understanding this is super important because the government's money decisions affect everyone, including you and your family. Let's dive in and see how it all works!

Part 1: The Government's "Wallet" - Revenue & Spending

Imagine the government has a giant wallet. Money comes in, and money goes out. It's that simple!

Where does the government get its money? (Revenue)

Revenue is the total income the government receives. In Hong Kong, the main sources are:

  • Taxes: This is the biggest and most important source! It's a sum of money that citizens and companies are required to pay to the government.
    Examples: Salaries Tax (paid by working people from their salary), Profits Tax (paid by companies from their profits), and Stamp Duty (a tax paid when buying property or stocks).

  • Land Sales: Hong Kong's government owns all the land. It makes a lot of money by selling long-term leases of land to property developers who then build apartments and shopping malls. This is a very special and large source of income for Hong Kong.

  • Fees and Charges: This is money you pay for specific government services.
    Examples: The fee for getting a new ID card, the ticket price for a public swimming pool, or the cost of a car license.

  • Investment Income: The government saves and invests a lot of money (in things like the Exchange Fund). The profits from these investments are another source of revenue.
How does the government spend its money? (Expenditure)

Expenditure is what the government spends its money on. This spending is for providing services and building things for the city. Major areas include:

  • Education: This is for our schools! It's one of the biggest spending areas.
    Examples: Paying teachers' salaries, building new schools, and providing subsidies for students.

  • Social Welfare: This means helping people in need.
    Examples: The Comprehensive Social Security Assistance (CSSA) scheme for low-income families, and allowances for the elderly and people with disabilities.

  • Health: For keeping us all healthy!
    Examples: Running public hospitals like Queen Mary Hospital, funding government clinics, and paying for doctors and nurses.

  • Infrastructure: These are the big construction projects that help our city run smoothly.
    Examples: Building new MTR lines, highways, bridges, and developing new towns.

  • Security: For keeping our city safe.
    Examples: Funding the Hong Kong Police Force, the Fire Services Department, and Customs.
⭐ Key Takeaway for Part 1

The government's wallet gets filled with revenue (mostly from taxes and land sales) and is emptied through expenditure on essential services like education, health, and social welfare for the public.

Part 2: What Decides the Spending?

The government can't just spend money however it wants. There are important rules and factors that guide its decisions.

1. The Basic Law: The Main Rulebook

The Basic Law is Hong Kong's mini-constitution. Article 107 is a very important rule for public finance. It states that Hong Kong should try its best to keep its budget balanced, avoid deficits (spending more than you earn), and match its spending to the growth of the economy.

Analogy: It's like your parents telling you, "Try not to spend more than your weekly allowance!"

2. Government Revenue: You Can't Spend What You Don't Have!

This is simple logic. If the economy is doing well, companies make more profit and people earn more, so the government collects more tax revenue. With more money, it can afford to spend more. If the economy is bad, revenue falls, and the government might have to cut spending.

3. The Policy Agenda: The Government's Annual "To-Do List"

Every year, the Chief Executive gives a speech called the Policy Address. This speech lays out the government's main goals and priorities for the coming year. If the Policy Address focuses on improving healthcare for the elderly, then you can expect government spending in that area to increase.

⭐ Key Takeaway for Part 2

Government spending is carefully controlled by three main things: the rules in the Basic Law, the amount of revenue it collects, and its yearly goals set out in the Policy Agenda.

Part 3: The Big Goals of Public Finance

So, why does the government collect and spend all this money? It has three main goals for our society.

1. Meeting Social Needs

The government provides essential services that everyone needs but might not be able to afford individually. This ensures a basic standard of living for all citizens.
Examples: Affordable public housing, cheap public healthcare, and 12 years of free education.

2. Re-distributing Income (Making Society Fairer)

Don't worry if this sounds tricky! Think of society's wealth as a giant pizza. Some people have very big slices, while others have very small ones.

The government uses public finance to make this a bit fairer. It takes a small piece from the biggest slices (through a progressive tax system, where higher earners pay a higher percentage of tax) and gives it to those with the smallest slices (through social welfare). This helps reduce the gap between the rich and the poor.

3. Driving Economic Development

Government spending can help the economy grow. By investing in infrastructure like new airports or high-speed railways, it creates jobs and makes Hong Kong a more attractive place for businesses. This helps everyone in the long run.

⭐ Key Takeaway for Part 3

Public finance isn't just about numbers. It's a powerful tool used to provide services for everyone, make society fairer, and help the economy grow.

Part 4: Our Rights and Responsibilities

Public finance is a two-way street between the government and its citizens. We all have a part to play!

Our Responsibility: Paying Taxes

It is the duty of every eligible citizen and business to pay taxes according to the law. This is our contribution to building a better society. The money from our taxes is what funds the hospitals we go to and the schools we attend.

Our Right: Enjoying Public Services

Because we fulfil our responsibility by paying taxes, we have the right to enjoy the public services provided by the government. This includes everything from borrowing books from a public library to being protected by the police.

Quick Review Box: A Two-Way Street

WE GIVE (Our Responsibility) → Paying Taxes
WE GET (Our Right) → Enjoying Public Services

⭐ Key Takeaway for Part 4

There is a clear relationship between citizens and the government: we have a responsibility to pay taxes and a right to enjoy the public services funded by them.

Part 5: Hong Kong's Special Tax System

Hong Kong is famous around the world for its unique tax system. It's quite different from many other developed places like the USA or the UK.

Key Features of HK's Tax System:
  • Low Tax Rates: The percentage of income that people and companies pay as tax is much lower in Hong Kong compared to most Western countries.

  • Simple Tax System: We have fewer types of taxes. For example, Hong Kong does NOT have a sales tax (also known as GST or VAT), which is a tax you pay on almost everything you buy in many other countries.
Why is Hong Kong different?

This "low and simple" tax system is designed to attract businesses and talented people from all over the world to work and invest in Hong Kong, which helps our economy.

The Trade-Off: While we enjoy low taxes, countries with high taxes often provide more comprehensive welfare benefits, like free university education or more generous unemployment benefits. Hong Kong relies heavily on other revenue sources, like land sales, to make up for the lower tax income.

⭐ Key Takeaway for Part 5

Hong Kong maintains a low and simple tax system to stay economically competitive. This is different from many other developed countries which have higher taxes to fund more extensive social welfare.

Extended Topic: A Big Challenge - The Aging Population

Now, let's look at a major challenge that will affect Hong Kong's public finance in the future. Our city has an aging population, which means there are more and more elderly people and a smaller proportion of young, working people.

How does this affect the government's wallet?

Think of it like a see-saw.

On one side, SPENDING goes UP ▲
More elderly people mean the government needs to spend much more on:

  • Healthcare: Elderly people generally need more medical care.
  • Social Welfare: More spending on elderly allowances and services.
  • Housing: More need for elderly-friendly homes and care facilities.

On the other side, REVENUE goes DOWN ▼
Fewer young people working means:

  • Fewer people are paying Salaries Tax.
  • The "tax base" (the total number of taxpayers) shrinks.

What are the possible solutions?

This is a tough problem with no easy answers. The government has to consider different options to finance the needs of the elderly:

  • Find more money: This could mean raising existing taxes or introducing new ones, but that could make Hong Kong less attractive for businesses.
  • Encourage private savings: Persuade people to save more for their own retirement and buy private medical insurance.
  • Use reserves: Spend from the government's huge savings (its fiscal reserves), but this money won't last forever.
⭐ Key Takeaway for the Extended Topic

An aging population puts great pressure on public finance by increasing expenditure (on health/welfare) while decreasing revenue (from a smaller workforce). Finding a sustainable way to pay for elderly care is a huge challenge for Hong Kong's future.