What are the effects if the government implement of Good-and-Services Essay

What are the effects if the government implement of Good-and-Services Tax (GST) in Hong Kong with the aim of broaden the tax base in Hong Kong - Essay Example Usually the problem arises because it is politically difficult to lower the demand for expenditure growth and to raise revenue to match 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, â€Å"another reason that the public spending tend 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 does spending. 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 structural imbalance between spending and revenue. Baumol further sta tes, â€Å"the rising share of public expenditure in GDP and the faster growth of recurrent spending over recurrent revenue are 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-1980’s.