The report claims the only viable option to a GST is "a drastic reduction in personal allowances," so that "nearly all wage and salary earners would be brought within the salaries tax net." On the contrary, a much safer and simpler option than the GST would be to raise the 2 percent tax rate to 4 or 5 percent. Yet the report actually contemplates reducing the 2 percent rate to 1 percent for five years. It worries that raising tax rates "would go against the international trend of lowering income taxes and risk losing mobile labor and capital to more competitive jurisdictions." But tax competition is about lowering high tax rates, not the lowest ones. A Hong Kong worker facing only a 4 percent tax on a small portion of earnings could not find a more competitive tax anywhere.

If doubling the lowest tax rate has been ruled out only because it would be politically unpopular, consider the experience of two countries that added a GST.

In the summer of 1989, Sosuke Uno was prime minister of Japan for only 69 days because he introduced a 3 percent GST. The GST was increased to 5 percent in April 1997, promptly followed by recession. For many reasons (including additional new taxes on capital gains and land), Japan's economy and tax receipts remained stagnant until very recently.

In 1993, Canadian Prime Minister Brian Mulroney pushed through a 7 percent GST, instantly becoming the most unpopular PM in Canadian history. His Progressive Conservative Party lost so many seats that it ceased to be a major party.

The new Hong Kong report claims such international experience proves a new GST or VAT is only temporarily harmful to economic growth. But that depends on whether it was something new (as in Japan and Canada), or whether it replaced an equally onerous retail sales tax (India) or was accompanied by cutting the highest income tax rates in half (New Zealand). There is no such thing as a harmless tax, whether imposed on what we earn or on what we buy.

Hong Kong, like every country that followed its example, has prospered for decades by sticking to just two simple rules: Keep marginal tax rates as low as possible. Don't let government spending grow any faster than the economy that supports it. As Japan should have taught us, a new GST is no alternative to Hong Kong's older wisdom.