Economic Trends and Prospects in Developing Asia - Essay Example

Usually, the problem arises because it is politically difficult to lower the demand for expenditure growth and to raise revenue to match the government’s tendency to spend more and more. Almost all political systems, democracies included, have this problem. Fortunately for Hong Kong, the Basic Law provides a kind of constitutional limitation of budget deficits. According to Professor William Baumol, “another reason that the public spending tends to rise faster than revenues stems from the fact that the most important component of public spending is civil service remuneration”(Fiscal Issues) Sometimes, volatility can mask what is essentially a structural issue.

In a good year, when revenue increases, so do spend. In a bad year, however, spending does not decrease when revenue does. If spending always grew to match growth in revenue, over time, spending would exceed revenue. This volatility is really a structural imbalance between spending and revenue. Baumol further states, “the rising share of public expenditure in GDP and the faster growth of recurrent spending over recurrent revenue is the main structural problems with the Hong Kong budget”(Fiscal Issue) In some countries – as for instance, most of the European countries – the reforms consists of a gradual process of adaptation.

As a consequence, the tax systems in operation in the 30 OECD member countries today are fundamentally different from those which operated in the mid-1980s.

          The recent tax reforms have been driven by the need to provide a more competitive fiscal environment that encourages investment, risk-taking, entrepreneurship, and provides increased work incentives. At the same time, governments have been aware of the importance that taxpayers maintaining their faith in the integrity of their tax systems. In this context fairness and simplicity are two keywords. Fairness requires that taxpayers in similar circumstances pay similar amounts of tax and that the tax burden is appropriately shared.