HOW do you get a somewhat moribund economy moving? Why create tax incentives, of course!

Real estate, which was far more of an economic driver in China than anyone gave sufficient credit to is going to be jump started: The State Council in March reduced the holding period for avoiding the business tax on sale of residence from five years to two years. Will this work? Price reductions and mortgage finance availability in conjunction with the tax benefits of a shorter holding term will definitely work. Will one, alone, do the trick? I doubt it.

Of equally pressing concern in China is the funding of their social security/social welfare net. There are five social insurance categories falling within this program: pensions, medical, maternity, worker's disability compensation and unemployment. This is supposedly to be a national program with benefits per worker transferring with the worker when that individual leaves his current location and goes someplace else within China to work. Yes, the idea of transferability under a uniform, nationwide program does make sense. Alas there is a sizeable gulf between the goal the central government is striving for and reality. Taxes for each of the five categories of insurance are deducted from employee wages throughout the country and employers pay an even larger amount (an employer must be prepared to have an additional 30 percent of wages to cover these items). But (isn't there always a 'but' to screw things up?) no two cities in China deduct the same percentage for each category and no two cities administer these withholdings the same way. I just wonder when in our lifetime, there will exist the ability for a Chinese laborer working in the north to easily transfer his insurance records to a new location half-way across China. Obviously this does not work, now. When, though, is the big question.

And the other big question is when and how the central government will start reducing its interest in the massive state owned enterprises, ownership of which will be divested to truly jumpstart a true national social welfare umbrella - pour funding money into the system and that system can even start to work! The Hong Kong Institute of CPAs April magazine had quite a thorough article discussing the SOEs and how they will ultimately reform and go private. Obviously the losing entities, the so called 'dogs' are simply going to be cut loose and either wither or be taken over because the government simply sees no hope in them. Others, with potential, will merge in hope of reducing costs, competition and inefficiencies in the first step towards future reorganization for funding the social welfare needs. Others will take in private sector investors. Still others will be sold outright. This too, is not a matter of 'íf' but when.

'When' is also the primary matter of concern when it comes to social security. I've already mentioned the five different types of social insurance that the central government calls for throughout the country: medical insurance, unemployment insurance, workman's compensation/injury insurance, maternity insurance and last but by certainly no means least, pensions. This is no longer the China of the iron rice bowl where, from cradle to grave and virtually all else in-between, all needs were covered through your danwei, your working unit. These were still around in the early 90s. A decade later they were, for all intents and purposes, a thing of the past. Only now is it being realized that developing an all encompassing system is essential but it is going to take time to get it all worked out.

First and foremost, the development of the Chinese stock markets must first reach the capability of the state being able to divest its share of ownership in the state owned industries that would attract investment. Then, of course, you've got to have the transparency necessary for not only the transfer of funds to the body that will prudently invest these funds to be able to cover the social insurance needs of society, but that governing body, open and transparent, must be capable of doing it right. When will that happen? Your guess is as good as mine....but it is coming.....only it is going to take some time - the government really cannot afford any blunders in this area!

For the meanwhile, chaos brews. Each city takes a percentage of wages and salaries for each of the five social insurances from both employees and employers. Only there is no uniformity as to what percentage each city uses.....and each jurisdiction administers it all in its own way - no standardization, what-so-ever. Now how are you going to transfer these supposedly transferable benefits if an employee leaves his long term Shanghai job and moves to Chengdu?

and there's perpetually myopic Hong Kong

Remember the tale of the boy who cried wolf? He cried out and cried out and cried out so many false alarms that when the real wolf came, no one was left to listen to what they assumed would be yet another false cry. Such is the case of the head of the treasury in Hong Kong, John Tsang, a person who has, with singular regularity been crying doom over the fall of revenues for as long as he's been in office. And for each and every year, guess what - he's been wrong, so very, very wrong that the poor man (misnomer, actually, as all upper appointees of this nature for Hong Kong are more than appropriately rewarded) no longer has much credibility left.

To prove my point, let us look at this currently concluded March 31 fiscal year. The Tuesday, 5 May edition of the South China Morning Post reported that Hong Kong's revenues for the year 'swelled to a record-breaking $HK301.9 billion ($US38.7....sorry, you'll have to convert to crores and lakhs yourself!). That's a 24 percent year-on-year increase with the highest single category, once again, being stamp duty revenue because of the speculative way that Hong Kongers and mainland Chinese speculators approach real estate, not as a place to live but a place to turn a quick profit. Stamp duty revenue rose 80 percent, year-on-year to $HK74.8 billion.

And it is not just the speculative nature of the beast that drove up revenues from stamp duties - business has been good because profits tax rose 14 percent as did property tax. Betting duties (come with me to the races at the HK Jockey Club, my friends!) increase 8 percent, year-on-year. The laggard?salaries tax - they increased a paltry 7 percent.

I am cynical for two reasons: firstly, budget projections before the start of the year are annual jokes, actually. Just before this record breaking year began, the government forecast an estimated 0.3 % drop in tax revenues for the fiscal year. Should anyone take budget projections from Hong Kong seriously when they've been so consistently, pathetically wrong? Secondly, Hong Kong is sitting on a simply humungous budget surplus, supposedly saving for a rainy day while ignoring the basic services that many of its constituents are lacking.

Sadly, I see neither any government changes on the horizon nor do I see a citizenry who really cares - they've been alienated for a longer time than anyone in the government suspects. Gee, is there anyplace on earth without these similarities?

Anyhow, here's another one from me 'without' any mention of US taxes!!!