Hong Kong Remains World's Freest Economy

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

13 January 2012

For the 18th consecutive year, Hong Kong maintained its position as the world’s freest economy, according to the 2012 Index of Economic Freedom, published annually by The Heritage Foundation.

Launched in 1995, the Index evaluates countries in four broad areas of economic freedom: rule of law; regulatory efficiency; limited government; and open markets.

Based on its aggregate score, each of 179 countries was classified either as: “free” (i.e. combined scores of 80 or higher); “mostly free” (70-79.9); “moderately free” (60-69.9); “mostly unfree” (50-59.9); or “repressed” (under 50).

Hong Kong scored 89.9 on the 1-100 scale, highest worldwide. Singapore, which has ranked second all 18 years, scored 87.5. Australia and New Zealand ranked third and fourth, respectively, enabling the Asia-Pacific region to account for the four highest-ranked countries.

The world average score of 59.5 was two-tenths of a point below the 2011 average and the second-lowest score recorded over the past 10 years. Among the 179 countries ranked, scores improved for 75 countries and declined for 90. Others did not change.

Hong Kong’s score improved following a recent government plan to rebate excess revenue to citizens. However, Index editors expressed concern that recent policy changes in Hong Kong, particularly the implementation of a minimum wage, had “moved Hong Kong modestly in the direction of a more bureaucratic and politicized economy”.

Rankings for economic freedom in some countries, including the United States, declined following massive government spending initiatives. Other countries improved their scores with efforts to broaden tax bases, lower rates and combat inflation.

Asia Pacific, although home to the four highest-ranked countries, scored 57.5 as a region. Despite this improved score, Asia-Pacific finished fifth among the six geographic groupings surveyed. The gain over 2011 was helped by Taiwan, which scored higher in six of 10 categories of economic freedom measures, finishing at 71.9 for 18th place, ahead of Macau.

Overall, 27 of the 41 Asia-Pacific countries were classified as “mostly unfree” or “repressed.” Three of the 11 lowest-ranked countries are in the region, including North Korea, which, unsurprisingly, ranks as the world’s least-free economy. Rankings declined for China and Japan, the region’s two largest economies. China dropped because of state control of the economy; Japan because of increased government spending, in part a response to the earthquake and tsunami that afflicted the country.

The Heritage Foundation noted that Index results continued to demonstrate that when countries adopt policies leading to high scores, they also enjoy prosperity, economic security and success. In the United Nations’ assessment of what it calls poverty intensity, mostly free and moderately free countries have only a third the number of people in this position as do mostly unfree and repressed countries.

The top one-fifth of countries in advancing economic freedom grew at an average rate of 3.7%. The bottom fifth grew 2.1%.

TAGS: tax | investment | business | law | banking | international financial centres (IFC) | Australia | China | Macau | Singapore | Taiwan | offshore | Hong Kong | New Zealand | United States | Japan | business investment