Next Magazine (2014.07.31, A002, Second Opinion, Bill Stacey)

Mark Twain penned the maxim that “no man’s life, liberty or property are safe while the legislature is in session.” It has always seemed a wise precaution to keep a close eye on what the legislature is doing. Therefore it has been possible to take some comfort in Hong Kong from the inability of the legislature to take deliberative action and the usual difficulty of the government proposing legislation that gets through the LEGCO. Gridlock in the legislature has allowed people to get on with business largely unhindered by new impositions.

Yet increasingly this inability to legislate comes at a cost to the rule of law. As the government and bureaucrats find that they typically cannot count on the legislature making new laws, they interpret existing laws with ever wider discretion. The scope of arbitrary regulation is broadening. This does serious damage to the rule of law, although that probably does not start out as the intention.The process starts with the government or bureaucrats identifying a new problem. Problems abound in Hong Kong as in every major city. Many problems are imported from elsewhere. For instance, we did not have a problem developing “social enterprises” until they became buzz words elsewhere and we started to import them. Private initiative developed many of our schools, hospitals and charities into great institutions. “Social enterprises” advocates however are oblivious to these successful local initiatives and press for importing a solution that is looking for a problem. A series of new government programs and expenditures have been implemented to duplicate what we already did privately.Whenever a problem surfaces, a knee jerk bureaucratic response is to establish committees and programs to deal with the issue. That requires funding or the diversion of resources. Often it will also require legislation to authorize the use of government power or spending money. When budgets are held up or new legislation is destined to interminable processes through the legislature and it’s committees, the administration is increasingly looking at new avenues to act. It extends the interpretation of existing laws and the scope of existing programs. When it is able to legislate it does so in the broadest terms possible.Some examples. Tax law is notoriously difficult to change. Hong Kong remains formally committed to its low and simple tax regime. Yet the Inland Revenue Department (IRD) is eager to maximize revenue. There are more anecdotes about new and innovative revenue maximizing interpretations of the law and divergence from past practice by the IRD.

Businesses report more time spent on tax compliance. Ambit claims from the IRD are often not supported on appeal, but the lengthy and costly process of appeals encourages many taxpayers to settle for more than they had expected. Collections of the new duties on property transactions continued for over twelve months before legislative support kicked in. The urgency of the property “crisis” was used to justify interim actions that, though formally legal, would nevertheless have not been taken had we paid greater respect to the rule of law. Another example is the new competition law. Although legislation has been implemented, the principles are so open ended, that without regulations and guidelines, the law is almost impossible to interpret. As the new competition regulator is being staffed (mostly by expatriates from other countries), it has become increasingly evident how arbitrary the law is. Officials reassure small businesses that they are not targets of the regulator – irrespective of what the law says. Chairwoman Anna Wu went so far as to telling small businesses, “if it is not a serious breach of conduct, we will be lenient”. That is not the statement of a regulator faithful to the rule of law, but of an autocrat dishing out arbitrary punishment at her discretion.The rule of law protects our liberty. It makes life harder for governments by constraining their scope for action. It also means that not all problems can be solved by legislation, but the private realm not hindered by law is where human action, creativity and private problem solving thrives.

Bill Stacey is in his 10th year as a resident of Hong Kong and is Chairman of the Lion Rock Institute.We are now on Facebook http://www.facebook.com/Next2ndOpinion