Fiscal freedom and the making of Hong Kong’s capitalist society

Abstract

Fiscal autonomy is a defining principle of China's arrangements for Hong Kong's postcolonial administration and was a major feature of British rule before 1997. This article begins with a discussion of how this colony achieved unusual freedom from London's usual oversight of colonial governments. After rejecting Colonial Office demands for a modern income tax, Hong Kong stuck to the principle of "low tax, small government," defying London's repeated calls for increased public expenditure on social development while resisting local business pressures for subsidies and tax concessions. The analysis then identifies fiscal freedom's contribution to Hong Kong's growth as an international financial center. The discussion explains the link between Hong Kong's unfashionable fiscal conservatism in the 1950s and 1960s and the buildup of government reserves to a level which permitted Hong Kong to control its own monetary affairs, including an independent currency. The final section assesses the gains and losses, both economic and social, which accompanied this fiscal independence. The analysis makes extensive use of unpublished archival material.

Democratization and budget openness: evidence from Hong Kong, Macao and Taiwan

“…Khagram et al, 2013;Wehner and De Renzio, 2013). Hong Kong a 1984/19851989/19901995/19962001/200220122015Macao b 19751980199220032015Taiwan c 1991/19921996/19972000200420122015 Notes: denotes 'liberalization/pre-democratization stage'; denotes 'democratization stage'; denotes 'democratic consolidation stage'. a The year '1984/1985' was selected as the 'base year' as it represents 'one year before' the introduction of the first kind of election to the Legislative Council; '1989/ 1990', '1995/1996', '2001/2002' and '2012/2013' were selected to trace the state of budget openness of Hong Kong 'three full years after' the introduction of 24 indirectly elected seats to the Legislative Council in 1985, the introduction of 18 directly elected seats to the Legislative Council in 1991, the transfer of sovereignty plus the introduction of indirect election to office of the Chief Executive in 1997, and the implementation of 30 directly elected seats to the Legislative Council as specified by Annex II of the HKSAR Basic Law in 2008, respectively.…”

“…Nicknamed the 'Pearl of the Orient' during British colonial rule and now officially called the Hong Kong Special Administrative Region (HKSAR) under the sovereignty of the People's Republic of China (PRC) (1997-present), Hong Kong has developed its fiscal autonomy for several decades (Goodstadt, 2012). As running 'the Empire on the cheap' was one of the governing principles of the British Empire (Brendon, 2007: 334), London imposed stringent fiscal discipline on all its colonies worldwide, including Hong Kong (Scott, 2010: 152).…”