past the peak

even in death, taxes (except here, now)

So Henry "Smiler" Tang has announced his budget here in Hong Kong. I'm sure it must be coincidence that Gordon Brown announced his in London on the same day, or is the colonial umbilical cord still there?

Anyway, Henry's (actually, just like Gordon's) was a bit of a non-event. No major changes to tax. Except for the decision to scrap estate duties. Now like most people I don't want my kid to have to pay a huge chunk of tax on my eventual estate (we're mainly talking about my house), not least because I already paid big UK tax on the salary I saved to buy it with in the first place. So big score for Henry for getting rid of that unfairness.

But in Hong Kong it's not quite the way it is in UK. The key is in Henry's reasoning. He says that doing this will save people the trouble of employing smart lawyers to find the loopholes in the current system (?!). He also claims it will bring more asset management work to Hong Kong as people bring their capital here. Presumably this is to avoid estate duty/inheritance tax overseas.

So lots of economic impact by creating work for foreign asset managers. Not. So the benefit to the average Hong Kong resident would be? (And, incidentally, the impact on the tax revenues of the other jurisdictions from which that capital took flight would be?)

Actually it's worse than that. Recently the Hong Kong Government announced the creation of a Poverty Commission, to look at the plight of the increasing number of local people falling below the poverty line. This is partly (mainly?) the result of the fact that the fruits of the recovering local economy (8.1% GDP growth last financial year) are not trickling down to the lower levels of the community. 

Of course these are the people who will have nothing to levy estate duty on anyway, so the saving to them from this new measure will be zero. On the other hand, the people in Hong Kong who will benefit most will be the rich elite and the upper-middle classes. Now which of these groups (the poor or the rich/upper middles classes) do you think will be most influential in the forthcoming elections (either 2007 or 2010) when (yes) Henry is likley to stand as candidate for Chief Executive?

Perhaps the policy people in the Hong Kong Government ought to talk to each other a little more. Perhaps the Government ought to think more about the poor, and less about the already-rich. Perhaps, sadly, Hong Kong is, after all, the freest economy in the world. And where, as the old adage says 'the rich get richer, and the poor get screwed'.

wanna bet?

Macao is just 30 km away, across the other side of the Pearl River. It takes an hour to get there by the Shun Tak hydrofoil high-speed ferry, or a fifth as long by the Shun Tak helicopter. It's a fun, quaint, grotty kind of place, with lots of Portuguese influence still visible, if not audible anymore (the colonial mother tongue has been unceremoniously squeezed out between English and Putongua, aka mainland Mandarin).

The economy has undergone a transformation over the last two years, since the liberalisation of the gaming industry in 2002. Before then, the place had a reputation for being a (very) seedy little backwater run for (if not by) some nasty elements including triad criminal organisations and a small number of well-connected businessmen, who between them basically held all the cards (forgive the pun) in the gambling sector (including the lead casinos being owned by the same company that owns (yes, that's right) Shun Tak).

Come the liberalisation and the invasion of the Vegas boys began. Now you can't move without coming across a new casino opening, resplendent with stands of celebratory flowers, gold plate and dazzling neon. It's like oriental Blackpool, only tackier.

Macao is a tiny place, with a total population of 450,000. It's a one-industry town - gambling (although they insist on the more neutral and potentially up-market term: gaming). And this industry has a great target market; most of the population of the mainland. Now not all 1.3 billion of them get to go to Macao to bet a few bob (known locally as renminbi or RMB) on the tables of the Vegas barons, but their numbers are increasing. Over 12 million last year, and probably topping 15 million this. This has created a growth explosion, with great job opportunities in the croupier, waitress, construction labour and hooker sectors. They're having to import labour, including some very leggy Russians for the latter positions (as it were).

Macao has been smart in developing this niche (gaming, I mean). Of course its customer base is pretty captive given that (a) gambling is illegal on the mainland; (b) the Chinese love to gamble; (c) Macao (like Hong Kong) has a land boundary with China proper; and (d) there is more grey money floating around the mainland economy than Alan Greenspan could shake a stick at. So keen are the good citizens of the PRC to play the tables that some of them are even going across the Russian and North Korean borders to gamble at casinos deliberately set up to meet their needs. And it's not just personal or shareholder money that's being slapped down on the green baize; some Government and Party officials are taking public funds and putting them up against the house dealer. And losing them, of course.

All of this, though, is much to the chagrin of the burgers of Hong Kong. The world's freest economy (according to a US 'Foundation' that makes Oswald Moseley look like a liberal) and the home of entrepreneurial skill. Blah blah. But the reality is that what runs Hong Kong is Big Business (well, after Beijing anyway). And the business model is very much what's good for business (ie mono/duopoly, dominant players and cosy relationships) is good for the consumer, whether they like it or not.

One of the better examples of this is the monopoly enjoyed by the Hong Kong Jockey Club, an institution with a long and distinguished history of regulating racing, giving very significant amounts of money to local charities and good causes, and promoting responsible gambling along the way. Well done, Gents. But the price the gambler pays is not being able to bet anywhere outside the Jockey Club's reach and having no access to international internet gambling. Now don't get me wrong; I don't think we should be doing anything to encourage gambling in Hong Kong. There are enough people in the lower quartile of the economy who can ill afford to spend their money on tomorrow's dog food as it canters around an exquisitely-manicured race track.

But given that people want to gamble, and will go (as they do, in droves) to Macao to be able to get into some of the seediest casinos around, the Jockey Club might consider changing its business model. Well the good news is that it has. It has asked the Hong Kong Government to allow casino gaming in Hong Kong. As long as the Jockey Club gets the monopoly. After all, you wouldn't want unscrupulous people running racing and gambling, would you?

With the current leadership vacuum in Hong Kong, nothing looks likely to happen any time soon. More likely, gaming liberalisation will join the other umpteen major policy issues currently trapped in the public consultation system. Until that gets sorted out, little chance that the Jockey Club will get what it wants. And very likely that miniscule Macao will continue to steal a march on its bigger and brasher brother across the River. That can't be a pleasing prospect for the Stewards of the Jockey Club, who on Sunday were in full splendour as they drove their S500 Mercs up to the race course at Sha Tin to enjoy the Hong Kong Derby (appropriately enough sponsored by, yes that's right, Mercedes Benz) and to lunch on champagne and oysters, while admiring each others equine assets around the paddock. You'd think it'd be enough to make them rethink the sewn-up, patronage-based system they have here. But I wouldn't give any decent odds of that happening this side of hell freezing over.