Tuesday, January 17, 2006

Why accountants care about Hong Kong's fiscal health?

A partner at PricewaterhouseCoopers was cited by the Hong Kong Standard as saying that GST will help stabilize government revenues against economic fluctuations and broaden the tax base, read the story here.

A puzzle that has to be resolved is why accountants in HK care so much about Hong Kong's fiscal health than say the local economists. That is certainly not the case in the US and the question is why?

I do not have the full answer, but I know this bit:

1) Accountants are out looking after their own interests, not HK's. So their eagerness to see GST introduced in HK may have something to do with their personal interests. For instance, GST may serve as a new source of income for accountants as businesses may need their help in filing tax forms.

Accountants can claim their private interests are not at stake when they come out in support of GST only if they can credibly commit that they will not do any GST related business. The keyword here is "credible". This can be achieved through posting a bond (say a few millions dollars or whatever discounted future income streams that are expected from GST related business plus a bit more) that will get confiscated once the accountants break their promises and conduct GST related businesses. I dare HK's accountants to do just that to prove their innocence.

And here is my conjecture:

2) In the US, with a mature democracy, lobbying is far more institutionalized than is the case in Hong Kong. In that case, accountants as a group do not need to come out and say what taxes they like or they don't like. If they want to lobby for a tax that will bring new source of income, they will simply call up their lobbyist in Washington DC.

This is not so in Hong Kong. Accountants only have one representative in HK's 60-member legislature and lobbyist as a profession is not as well developed here as in the US. Under such circumstances, accountants may then need to speak out for their favourite pork-barrel policies in the public.

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