Fiscal constitution, income distribution and the Basic Law of Hong Kong

On 1 July 1997, the Basil Law of the Hong Kong Special Administrative Region (HKSAR) will be enacted in accordance with the Constitution of the People's Republic of China. Articles 107 and 108 of the Basic Law, the so-called balanced budget and low tax policy articles, are the two most controversial articles of the Chapter on Economy. The manifest purpose of these two articles is to constrain the spending and taxing power of the HKSAR in order to prohibit elected members of the Legislative Council from turning Hong Kong into a welfare state, and they have been justified by some ostensibly using Buchanan's concept of fiscal constitution. This paper examines the justification and effects of incorporating elements of fiscal constitution in the Basic Law, focusing particularly on the income redistribution effect. The paper concludes that policy articles grounded on the philosophy of fiscal constitution should not have been included.