Financial Secretary John Tsang Chun-wah warned in his last budget speech nearly a year ago that falling revenue and the soaring health and welfare costs of an ageing population would leave the government unable to make ends meet without either drawing on massive reserves saved for a rainy day or raising taxation. In the middle of the festive season he has returned to the theme ahead of the findings of a report on the city's long-term fiscal planning, to be revealed in his next budget in February. He expects it to predict declining growth, a shrinking workforce, an ageing population, lower revenue and increased spending which would mean the government would eventually have to raise more revenue through taxes or other means.
There is little entirely new in this. In the early 2000s two government-commissioned reports separately warned the administration faced a structural deficit and called for a goods and services tax to widen the city's narrow tax base, an idea shelved in the face of political and public opposition. About that time the government offered tax breaks to developers who include elderly care homes in their projects through waiving the related land premium. Not a single developer has since taken it up because of fears that an elderly care component would depress flat prices. It is long past time for the government to review the scheme or replace it with something more practical. In any case, the government is now left to deal with the ageing society problem by trying to reconcile opposing views on tapping reserves, raising tax rates or widening the collection, issuing bonds, and expanding or freezing welfare.
Meanwhile, the growing mismatch of demand for and supply of residential and day-care facilities for the elderly, and the inexorable rise in demand for specialised care of dementia patients as people live longer, is becoming critical.
An ageing, advanced society like ours means people are living longer, more active lives. We can ease the burden of aged care by ending the outdated waste of the productivity of people aged 60 to 75 who are forced into premature retirement. But ultimately, the combination of a shrinking workforce, a growing non-workforce, falling revenues, low taxes and minimal social welfare means something has to give if Hong Kong is to maintain social fairness and cohesion. The chief executive's policy address this month, and Tsang's budget speech should lay the ground for a debate the city must have on what kind of society it wants to become in the future.