[Editor's Note: Sovereign Man Chief Investment Strategist Tim Staermose is filling in for Simon today.]
Hong Kong’s total population is around 7 million. The workforce is 3.75 million. So generous are the tax breaks and allowances, only about 1.5 million people pay any tax at all.
A single person can earn HK$108,000 a year (about US$14,000) before owing any tax. And a married person with a dependent spouse can earn HK$216,000 (US$28,000) tax-free.
For those who do pay tax, the maximum rate tops out at 17%… and most people pay less. There is no sales tax, no VAT, no capital gains tax, and no tax on dividend income. I can even buy all my favorite wines here completely free of tax or duties.
With such a liberal tax regime, you’d think the Hong Kong government would be struggling to make ends meet, right?
In fact, the Hong Kong government’s coffers are awash with so much money it just announced a projected budget surplus of 3.5% of GDP for the fiscal year ending March 31, 2012. This will leave it with cash reserves of about HK$662 billion (US$85 billion), or 22 months worth of expenditure.
Looked at another way, the Hong Kong government is sitting on about US$12,150 in spare cash for every man, woman and child in the territory, and they are rebating much of this to citizens over the next few months.
The US government on the other hand has DEBTS of about US$49,500 for each and every American, not including all the off-balance sheet liabilities, yet the maximum tax rate tops out in the mid 30% range.
If you’re a young person just starting out in life, why bother sticking around a place where you’re guaranteed to have a huge portion of your hard work confiscated by taxes, just to pay interest on a debt that was accumulated long before you were around?
You didn’t get any of the benefits. Why get stuck paying the bill?
There are a lot of places in the world that are full of opportunity, and you get to keep much more of what you earn. Hong Kong is just one of them.
As Simon always writes, no place is perfect. And to be fair, it’s not all cookies and unicorns here in Hong Kong. It’s a dense, crowded city. Real estate and rent can be very expensive (though there are cheaper alternatives). And the humid, subtropical weather may not be for everyone.
Life is about calculated compromise, though. And young people have little to hold them back. You’re free of mortgage debt and family obligations, opening up a world of possibilities.
On one hand, you can begin your life in a high-tax, low-opportunity, kleptocratic police state that intends on using you as a milk cow for the rest of your working life. On the other, you can choose an easy-going, free-wheeling tax haven where everyone has the opportunity to succeed.
The choice seems obvious. It simply takes the courage to follow through.