Hong Kong Expensive, Dublin Cheap, But Both Successful

by Mary Swire, Tax-News.com, Hong Kong

17 July 2001

Consultancy William Mercer's annual survey of the world's most expensive cities has very different news for Hong Kong and Dublin, the world's two most tax-efficient major cities according to lowtax.net. Hong Kong comes in at number 3, while Dublin languishes (or flourishes) at number 61.

Moscow, probably one of world's least tax-efficient cities (at least if you stick to the rules) comes in at number 2 in terms of cost. In fact, living in Moscow is quite cheap, especially after the 1998 devaluation - but of course the survey is measuring business costs, not personal living costs, so that sky-high hotel and restaurant prices count for more than cheap food markets. It costs fifty dollars to get from Moscow's airport to the city centre, if you're a William Mercer researcher who doesn't know any better - but if you take the 'limo' to the nearest metro station for 15 roubles, and then get a 3-rouble metro ticket into town, you get there quicker and it's cost you all of 18 roubles (60 cents).

Anyway, in Hong Kong even the residents agree that it is expensive, but that doesn't seem to stop firms from wanting to do business there. "One argument as to why people still come to Hong Kong is because they believe the trade-off is worthwhile. Companies believe that the profits from doing business here outweigh the costs of having to pay staff huge rental costs," said Macquarie Bank research economist Li Lian Ong yesterday, quoted in the South China Morning Post. "The only thing that drives Hong Kong's costs is the very high rentals. So you go to a restaurant and you are paying for the rental as well as the food," she said.

Given that the 1997 Asian financial crisis caused a slump in property prices, this might seem surprising. With low salary tax of 15%, lower rents, reasonable taxi fares, fast food and casual clothing, Hong Kong ought to be cheap? Not so, says Ms Ong, "There is the fresh food cost. Hong Kong does not have huge agriculture and a lot of the fresh food is imported . . . as is petrol. Hong Kong does not have any natural resources. Property prices have come down, but because of the [previous] bubble in the sector, they were way out of the stratosphere then . . . and now they are just expensive."

Paul Tang Sai-on, chief economist at Bank of East Asia, told the Morning Post that the increasing wealth gap has created a labour market problem making the cost of living much higher for those without the skills needed in a changing business environment. "You can't train retailers to be IT professionals and we've had difficulties with our education system in coming up with quality workers . . . so there will be labour demand and pressure on employment," Mr Tang said. "In the past, it was so expensive because of the dynamic trading activity and housing prices were rising rapidly. In the future, it will be different . . . as the labour market has not caught up with the changes."

Dublin, on the other hand, also apparently suffering from labour shortages and a property boom, has dropped five places in the league since last year to rank at number 61. Probably this is due to the recent weak performance of the euro against other major currencies. Surprisingly though it's only one place behind Vienna, which seems to be one of Europe's more expensive cities to the casual visitor.

William Mercer researchers say that results are based on a comparison of the cost of housing, food, clothing, transport and entertainment. Senior researcher Rehan Mustafa said that in Dublin's case there had been a gradual reduction in cost of living extremes reflecting price reductions from wider availability of international products.

Dublin and Hong Kong are arguably the most successful cities in their respective regions, which suggests that business success has got little or nothing to do with cost of living, and a great deal to do with tax. The English language is probably a help, as well. In a survey of headquarters' locations carried out last year, Hong Kong came out top of the ten cities surveyed. Dublin would have done better if its transport communications were better, and lost out narrowly to London for that reason, although Londoners sweltering in its execrable 'tube' will find that hard to believe.

Recommended