Hong Kong must consider using its reserves for health care
The government has been relying on an official estimate of the rising health-care costs of an ageing population that turns out to be far too low, according to revised predictions. As a result, advisers on the government's long-term fiscal planning working group consider that tax changes - meaning new or increased taxes - are inevitable in order to meet the higher costs. The subject of population ageing does not always get the attention it deserves. But linking it to tax changes focuses the mind.
In his budget speech earlier this year, Financial Secretary John Tsang Chun-wah said falling revenue and the soaring health and welfare costs of an ageing population would leave the government unable to make ends meet.
He ruled out drawing on accumulated reserves of about HK$1.25 trillion, including a surplus of nearly HK$600 billion in the Exchange Fund over what is needed to defend the Hong Kong dollar. He raised the alternative of taxation. This reflects the time-honoured line that the city needs to save against a rainy day. These savings amount to 66 per cent of Hong Kong's GDP, more than four times the accumulated deficit of 15 per cent of GDP that was run up during the Asian financial crisis and the Sars outbreak. A more realistic provision of 30 per cent of GDP, or about HK$570 billion, would leave about HK$700 billion to be set aside for health-care and welfare needs.
Where there is a socially divisive wealth gap, an ageing population compounds it. In this respect, Hong Kong and Singapore, both wealthy economies, have something in common. The city-state's Prime Minister Lee Hsien Loong recently unveiled measures to relieve the pressure on an ageing population of rising living costs and greater competition for jobs, education and housing. They include expanded government health insurance and stronger social safety nets.
The government's fiscal planning group would start a debate the city needs to have if it were to recommend that Hong Kong should earmark the hundreds of billions in reserves that have no clear purpose to help meet future health care, education and welfare liabilities.
To be sure, the government would have to exercise prudence and caution in turning down that path. But Hong Kong needs to reach a broad consensus that draws a sensible distinction between addressing poverty amid plenty, which means building a fair society, and welfarism and socialism.