The View | Hong Kong needs to weigh up social and economic concerns when designing retirement protection
The issue at stake is not strictly affordability
The Poverty Commission has just released its long-awaited policy consultation document Retirement Protection Forging Ahead. The public consultation process was plunged into controversy before it began by leaks that the government would frame the retirement protection options as “regardless of rich or poor” or for “those with financial needs”. The powerful lobbies for “universal retirement protection” are incensed. This is not surprising because this issue deeply divides society.
The government proposal contains some interesting budgetary comparisons for granting a monthly payment of HK$3,230 (in 2015 dollars) either to all elderly individuals (above 65 years of age) under the “regardless of rich or poor” option, or to “those with financial needs” (maximum assets of HK$80,000 for a single person and HK$125,000 for a couple).
Under a “baseline scenario”, the expenditure on elderly social security would increase from HK$25.3 billion in 2015 to HK$49.8 billion in 2064 as the elderly population grew; from HK$27.9 billion to HK$55.8 billion under the “those with financial needs” option; and from HK$47.9 billion to HK$106.1 billion under the “regardless of rich or poor” option.
Funding the latter is a particular concern because either profits tax would have to increase from 2.8 per cent in 2015 to 4.6 per cent in 2064, or salaries tax from 4.9 per cent in 2015 to 9.1 per cent in 2064, or a goods and services tax would need to be introduced, reaching 5.0 per cent in 2064.
If compassion cannot be fostered within the family, then it would be a stretch to believe it would thrive in the community at large
The issue at stake is not strictly affordability. There are those who view a universal retirement protection scheme as a grave threat to our freedoms and prosperity, which they see as founded on preserving a limited-government, low-tax-rate regime, and free, open economy.
One should also not ignore the fact that if society begins to subsidise everyone in old age it will alter everyone’s propensity to save for old age. Consider the effect of rising government social welfare expenditure on work incentives, which has resulted in the percentage of those aged 20 to 59 choosing not to work to increase from less than 1 per cent to over 3.5 per cent in a span of two decades.