HK estate duty abolition appears to boost funds

Farmers looking for their balls.

On April 26, 2007, Jane Moir reported that the abolition of HK estate duty abolition appears to boost mutual fund sales by 72% to US$24.3b last year. Total assets under management of all authorised funds grew 36% to US$91 billion. Its registered hedge funds gres 60% to US$1.66 billion.

Is it conclusive that there a direct correlation between estate duty abolition and the sudden jump in mutual fund sales? If the correlation is real, should Singapore therefore give up its estate duty collection for the greater good of its financial sector?

The abolition of the tax in Feb 2005 (after 90 years) is estimated to cost Hong Kong HK$1.5 billion (SGD$300 million). [In Singapore, the tax contributed about SGD$80 million last year.]

Let us see how Financial Secretary Henry Tang justify the move to the Legislative Council.

He agreed that it is hard to say how much of the rise was sparked by the abolition of estate duty. But in the same breadth, he told the Legislative Council during a question and answer session,

'The industry generally agrees that the abolition of estate duty has generated a positive impact and is conducive to the long-term development of our asset management business and the financial sector as a whole. We also understand from the banking trade that many private banking clients have relocated their overseas assets back to Hong Kong after the abolition."

Lawmaker Jeffrey Lam Kin-Fung sought reassurance that policymakers are recovering the lost revenue elsewhere when he asked, "How did the general public benefit from the abolition?"

Mr Tang replied - "In 2006-07 our revenue from stamp duty in stock transactions increased by 80 per cent' to HK$15 billion."

Another law-maker, Alan Leong Kah-Sit, asked - "I would like to know how the Financial Secretary can prove that these growth figures are a result of estate duty (abolition)?"

Mr Tang replied - "We cannot ask every investor if they invested into Hong Kong because of the abolition of estate duty or other reasons. Of course, every now and then we meet members of the financial services sector and hear their views and suggestions."

My view
Could the charging bulls of mainland China bourses have contributed to the billions of dollars entering Hong Kong? I really doubt the abolition of the estate duty could fully explain the rapid growth in fund management industry in Hong Kong.