Fiddling while Hong Kong pollutes

SCMP November 20, 2006

In January, before the budget, before the publication of the government's goods and services tax proposal, I proposed in this column the adoption of an energy tax. It would broaden the tax base, be easy to implement, be fair to all consumers and economically neutral.

It could also help the environment by cutting greenhouse-gas emissions.

Since that time, the argument for such a tax has increased dramatically. The GST proposal has been so strongly criticised by almost every political party that it is effectively dead. And now concern about climate change has moved to centre stage among global issues. It is likely to be with us a lot longer.

The mainland is increasingly focused on the damage to the health of its people being caused by air and water pollution. If for no other reason, Beijing is likely to agree to play a much larger future role in controlling emissions, and the search for low-cost alternatives to fossil fuels.

I am not suggesting that an energy tax would have a major impact on energy consumption in Hong Kong. But it would be a small contribution to the wider global issue and send a message that Hong Kong wanted to move from laggard to leader.

One may argue that Hong Kong does not need new taxes because it is flush with other revenue, including revived land sales. That is not the point. Such a tax would obviate the alleged need for a GST to broaden the tax base. It would produce a reliable revenue stream which could, depending on other circumstances, be used to finance cuts in other taxes or increase spending on the aged.

A 30 per cent tax on electricity and gas usage would raise some HK$15 billion a year, or the same as a 3 per cent GST. About 25 per cent would fall on households, where energy spending is roughly proportionate to household income.

Most of the burden would be borne by the commercial sector which, in summer, tends to overdo the air conditioning in offices, malls and hotels.

The impact on prices would be reduced if the energy tax were phased in with a new scheme of control for power companies - one that reduces their allowable rate of return on capital from 15 per cent to the (still very generous) 10 per cent or so likely to be set when the current scheme ends in 2008.

Unfortunately, it is difficult to be optimistic. I have been unable to elicit any contrary arguments about an energy tax from the government. It stays quiet, parroting its continued belief in the merits of a GST, and unable to consider alternatives to what is clearly a failed proposal.

Hong Kong's overpaid bureaucrats have never shown much ability for original or lateral thinking. The problems this creates are compounded by the way that ministers, such as Secretary for Environment, Transport and Works Sarah Liao Sau-tung, appear to be the glove-puppets of vested commercial interests.

What chance is there for an energy tax when Dr Liao makes so little effort to address pollution issues - other than with words and promises - as we lag far behind many other Asian cities in reducing urban pollution. Only last week she was quoted as warning that emission controls could endanger energy security and raise power costs.

In a classic bit of bureaucracy-speak which doubtless pleased business interests, Dr Liao said it would take two years to compile information and a plan on greenhouse-gas emissions. 'We have to make an assessment first', she said. As though it isn't plainly obvious what is happening here, and what could be done if the government could be bothered to force spending on cleaner sources.

If you want to be a leader, chief executive, it is well past time to be serious about the top global and local issue. A first step: sack Dr Liao.





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