Epitaph for Ed
South China Morning Post October 21,
This column is dedicated to all those who lost their
lives in the Bali bombing, and particularly those from Hongkong. It
is especially dedicated to one of their number, Edward Waller a fine
young man of 26 whom I the privilege to know well.
I never personally knew any of the victims of the World
Trade Centre, the Canary Wharf or other politically motivated bombings
of innocent civilians from Colombo to Jerusalem, Gaza to Bogota. Whether
being personally touched can help one think more clearly, or simply
more emotionally, about such things I have yet to learn. But I think
I can learn from Ed.
Ed was someone who had he lived another two decades would
likely have eventually earned long obituary in one newspaper or another.
He was also a fine example of an internationally minded young expatriate,
a group sometimes criticized for boisterous behaviour, who contributed
to Hongkong's economy as well as to its social and sporting life.
Part English, part Irish, half Thai Ed first came to Hongkong
immediately after school in England, doing a pre-university "gap year"
working for a Malaysian Chinese metals trader friend of his father,
an entrepreneurial mining executive who had lived in Thailand and started
a successful venture in Malaysia. After studying history at Trinity
College, Dublin Ed returned to Hongkong and quickly found his feet.
He became a regional marketing executive for the Lexis-Nexis, the database
company familiar to most lawyers and journalists. He was elected captain
of his rugby team and was much in demand by boat owners - myself included
-- for his skills on the foredeck as well as his relaxed and optimistic
view of life.
Ed worked hard and played hard. Fluent in Thai, entirely
comfortable with his own mixed ancestry he was always at the centre
of events, always with a ready smile and helping hand. He was one who
lead by an unusual combination of enthusiasm and being nice to everyone.
He was one of the most agreeable people I ever met, and one who, to
borrow a tribute from another friend, made people twice his age "feel
part of his gang"
So how does one respond to such a benign and promising
person being swept away by such a brutal act? In one sense, the Bali
attack was even worse than the World Trade Centre, a symbol of US power
and international capital. Bali was just somewhere people, most young
and unpowerful, went for relaxation. The first lesson Ed would surely
have advised: we should keep going to Bali, keep going to bars, keep
going on rugby tours. Surrender to fear is the first objective of all
For sure, the dangers of terrorist attacks has greatly
increased in recent times. But travellers are still more likely to die
in plane crashes than at the hands of terror bombers. He would surely
have rejected the craven cries of the Australian and US governments
which say their citizens should leave Indonesia, or the growing list
of other countries where Americans are advised not to tread. Secondly,
the nature of the terror threat is that it is unpredictable. After all,
Bali with its Hindu majority and large Chinese population had been regarded
as the safest place in Indonesia.
Furthermore, violence in Indonesia had hitherto been aimed
to other Indonesians rather than foreigners. For sure, Indonesian security
was lax. Quite possibly locals were bribed into silence or complicity.
But vague warnings of terror threats, such as those the US claims to
have made to Jakarta, do no more than cause worry, disrupt travel and
business. Only specific information can really prevent such bombings.
President Bush has been berating Indonesia for its lack
of attention to threats. But did foreign governments berate Bush when
hundreds of foreigners died in lower Manhattan? No, there was an outpouring
of sympathy. Let us not in our grief for those we knew forget that many
- perhaps 40% of the Bali victims were Indonesians, mostly Balinese.
The next such incident could as well be in the Louvre,
Lan Kwai Fong, Phuket or the Costa Brava as in Muslim Asia. And, as
the CIA has the sense to admit, the dangers of an attack on US soil
are as great now as before September 11.
Ed would have understood too that in the search for culprits
and in the measures to be taken to reduce the likelihood of repetition,
precision not blanket measures which created more communal or religious
rifts were needed. He not only lived part of his life in Ireland, locus
of so many terror attacks and communal tensions.
His own family crossed the Irish divides. He was a Catholic
via a Polish grandmother while on his father's side the Wallers were
Protestant Anglo-Irish gentry from Tipperary, still viewed as interlopers
by a few Gaelic Catholic extremists even though they had been there
So Ed was well aware that there were plenty of Irish
nationalists around with whom he sailed and played rugby but only a
tiny minority of Irish people supported IRA terror. In the same way,
he would understand that only a tiny number of Indonesian Muslims, even
of fundamentalist persuasion supported terror.
I have argued in these pages on several occasions that
aspects of the US response to the World Trade Centre bombing played
into the hands of the terrorists. The same applies now. The response
to Bali must be must be intense but must also be kept focussed. Iraq
is particularly irrelevant to fighting el-Qaeda. In this context let
me quote another columnist, the economist Paul Krugman, from the International
"Saturday's bombing was monstrously evil. It was
also, I am sorry to say, very clever. And it reinforces the sinking
feeling that America's leaders, who seem determined to have a conventional
war, are playing right into the terrorists hands… It's like the man
who looks for his keys on the sidewalk, although he dropped them in
a nearby alley, because he can see better under the streetlight. These
guys want to fight a conventional war. Since el-Qaeda won't oblige,
they'll attack someone else who will. Watching from the alley, the terrorists
Whether on the rugby pitch or the foredeck, Ed was never
one for excuses or scapegoats when things went wrong. He was also one
with an innate faith in other human beings. Let the punishment fit the
crime, but do not lash out blindly and in anger. Be true to Ed Waller's
optimistic, generous and fearless spirit.
may sound boring, but the Report of the Advisory Committee on New Broad-Based
Taxes is one of the most important documents to have been presented
to the Hongkong public since the handover. The taxation options that
it examines go the heart of how Hongkong sees itself, and its cross-border
is a concise and well written but controversial discussion document
that deserves to generate plenty of debate. Although it does not say
so in quite so many words, the Committee has confronted Hongkong with
a choice between a broader, and perhaps higher, level of income tax,
or a low but broad-based tax on consumption - a Goods and Services Tax
(GST). On balance it clearly favours the latter, reflecting the predominant
interests of the majority of its members, and the influence of the IMF,
a well-known proponent of consumption taxes which has done its own study
of GST options for Hongkong.
tone of it is regressive and the philosophy summed up by the unsupported
assertion that "overall lower tax burdens are less distorting to economic
activity". There is the whiff of the country club in its attitudes.
Unfortunately, the impact of the Committee's report is being diluted
by delay in producing a parallel report - Task Force Review of Public
Finances --into whether or not the government's operating budget deficit
is cyclical or structural. This is not expected till the end of this
year. There is the implication in this two-pronged approach by the government
that if it is deemed that the deficit is primarily cyclical there may
be no need to do more than tinker with the tax system. That would be
a grievous error.
regardless of the cyclical/structural debate, there is a desperate need
to broaden the tax base away from that once sacred cow, property. The
history of the budgets of the past decade, encompassing the careers
as Financial Secretary of Donald Tsang and Hamish McLeod, has been one
of persistent and irresponsible narrowing of the base even while officially
proclaiming the need for a broader and more reliable revenue stream.
Various increases in personal allowances have taken huge numbers out
of the tax net, and so reduced effective rates that only very high income
earners pay the standard rate of 15%.
1998/9 recession also saw sops to upper income earners through tax rebates
and concessions to them and the property developers through tax allowances
for mortgage interest. Add these politically inspired fiscal absurdities
to needs for more educational spending and the health demands of an
aging population and it is no wonder that Hongkong has an operating
deficit. At best an overall deficit which is being disguised by asset
sales such as the MTRC and the (diminishing) windfall from the 1998
stockmarket intervention. Perhaps the persistence of lower (but still
high) property prices and the realisation that in future asset prices
may rise no faster than the general price level will convince the government
that whatever happens to the economy as a whole the revenue system has
to change. Indeed, the government has been undermining its own future
revenue from property sales by giving cosy deals to the MTRC which will
enhance its profits from property development at the expense of public
how distorted Hongkong's revenue system had become is demonstrated by
the fact that at the 1997/98 peak, if one added all property related
revenue together - land sales, rates, stamp duty, property income, profits
tax on developers etc - they came to around 60% of all revenue. The
government used the boom in property prices to cut back other revenues
- the exact opposite of what it should have done. As the Advisory Committee
rightly notes, narrow tax systems are economically inefficient, inequitable,
report reasonably rejects several new tax options including capital
gains tax, dividend tax, poll tax, taxation of foreign-sourced income
and reinstatement of interest tax. Whatever their merits elsewhere they
make little sense in an economy as open as Hongkong's and with such
a low base rate for income tax. That leaves only three realistic options
for raising significant amounts of revenue: a payroll tax, a GST or
higher effective rates of income tax.
payroll tax would, now that most of the mechanisms are in place because
of the MPF, would be easy to collect. If imposed at 3% it would (at
1999-2000 income levels) raise HK$17.4 bn annually. The committee recognises
its fairness and efficiency but says that by increasing employment costs
it would reduce Hongkong's competitiveness. That is true but it is a
small amount relative to the cost of the MPF and would be predictable.
Nor is it likely to be so high as to deter employment. A city state
with no minimum wage has no excuse for structural unemployment.
income tax question has been divided by the Committee into three parts
- whether to raise profits tax, salaries tax and whether to reduce allowances
under salaries tax. This is unfortunate as it enables the committee
to avoid the question of whether to raise the standard rate of all taxes
on income. It notes that a 1% increase in profits tax would raise $2.8
bn and a 1% rise in salaries tax $2.2 bn.
makes much of the assertion that rises in either go against international
trends and would impact Hongkong's ability to attract investment and
top people. However, given that effective rates are far lower than in
almost every developed country - and Singapore, Taiwan etc -- this assertion
is debatable. It is particularly dubious as any increase in direct tax
would in effect be a substitute for the high but unpredictable taxation
that in the past has been levied through the government's land price
report makes much of the high proportion of direct tax already being
accounted for by profits tax. What it fails to mention is that much
of this derives not from local activities but from companies, multinational
and mainland, routing profits through Hongkong because it has a low
tax rate but is not deemed a tax haven. It is hard to imagine that a
modest increase in the profits tax would drive away a business close
to the hearts of the local accountancy profession.
more surprisingly, the committee does not seem very convinced by the
argument that reducing salaries tax allowances would be desirable, even
though it would hugely broaden the tax base and - assuming a 50% cut
in allowances-raise $14 bn a year. The report argues that a "disproportionate
amount of additional revenue would come from existing taxpayers". It
is hard to see why that should be so heinous when a single person can
earn almost $2 million before reaching the 15% rate and a married man
with three children and dependent parents can earn $4.2 million before
hitting this ceiling.
committee also makes the rather curious argument that in the absence
of a social security system personal allowances provide assistance to
"taxpayers with increased levels of family responsibilities and low
incomes". That is patent nonsense as the main beneficiaries of the allowances
are the households - a mere 20% of the total -- with incomes over $400,000.
Those are the ones least in need special consideration for social security
tended to play down the merits of increased direct taxes, the committee
has naturally had to take a very positive view of GST. A 3% tax on most
goods and services would raise around $18 bn and, it asserts, be fair,
neutral and efficient. It is hard to argue with the report's contention
that such a tax would be an effective way of raising money and would
have little impact on competitiveness. However it is so determined to
press the case for it that it resorts to using the fact that all OECD
countries have such a tax. So what? Most also have other taxes rejected
by the report.
also plays down the complexities of GST though reading Annex D and the
summary of the IMF report on GST makes it clear that the administrative
structure is not at all simple and itself involves difficult decisions
on what to include, at what point to levy it, how to treat financial
services, etc. The report also admits, in reference to passenger departure
taxes, that a GST might necessitate a tax on cross border movements
to protect Hongkong! "If a consumption tax were to be introduced… an
expanded departure tax could help alleviate consumers' spending north
of the border".
could well argue that Hongkong labour and real estate costs are what
make Shenzhen attractive to Hongkong consumers, and a 3% GST would make
little difference to the cross border advantage. However, the committee
does not make that case. Its position on the departure tax undermines
its claim that GST is efficient. It also raises a significant political
issue at a time when cross-border integration is supposed to be increasing.
discussion of the equity as well as efficacy of the tax system cannot
be detached from other issues such as public housing and welfare policies.
However, the tax system is a mess and need reform. The Advisory Committee
report is too marked by its members' aversion to direct taxation to
be acceptable. But at least the issue is now in the public domain. The
Committee has invited comments on its report. Go to it. ends