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A government study has warned that unless there is tax reform, the city's ageing population will eventually dry up our multibillion-dollar fiscal reserves.

Debate on a universal pension highlights need for tax reform

A pension scheme that gives everyone HK$3,000 a month sounds too good to resist. But opinion sways as soon as it comes to the big question - who pays for it?

A pension scheme that gives everyone HK$3,000 a month sounds too good to resist. But opinion sways as soon as it comes to the big question - who pays for it? The long-awaited study for a better retirement protection plan has raised more questions than answers. Is the amount enough? Should it be means-tested? More importantly, is it sustainable?

Developing such a retirement protection system is an issue the world over. Our problem appears to be even more challenging, as about half a million elderly people currently live on government subsidies. A fast-ageing population adds a further burden on taxpayers in the long run. A debate on the way forward is just a matter of time.

There are some who object fundamentally to a central pension scheme for all. They believe that saving up for retirement is primarily an individual's responsibility. This is done with the help of a mandatory provident fund scheme for all workers and employers. Those who have genuine difficulties can turn to the public welfare system. These two pillars of protection have served the city well, they argue.

But the scholar behind the government-commissioned study sees it differently. Having examined the existing regime, Professor Nelson Chow Wing-sun and his team concluded that there is a need for a new tax of up to 2.5 per cent to finance an old age pension scheme for everyone over 65, rich or poor.

Admittedly, proposals that dip into the individual's pocket will get people hot under the collar. Chow's concept is a fundamental change to our welfare regime, which targets the needy rather than benefiting everyone. Public support is further dampened by questions over the scheme's sustainability. It is estimated that the pool will go into deficit from 2026. In fact, so many queries have been raised that the public could be excused for getting the impression that the study was commissioned to kill further talk of a universal pension scheme.

We could, of course, close this chapter and pretend that the problem will go away. But the problem will simply be passed on to future generations. Our challenge goes beyond putting in place a sustainable retirement plan. Another government study has warned that unless there is tax reform, the city's ageing population will eventually dry up our multibillion-dollar fiscal reserves. So even if we dodge the pension issue, we still need to tackle the viability of our public finances in the long run. Doing nothing is not an option.

This article appeared in the South China Morning Post print edition as: Pressing need for tax reform
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