• Sat
  • Dec 20, 2014
  • Updated: 10:46pm
CommentInsight & Opinion

Debate on a universal pension highlights need for tax reform

PUBLISHED : Saturday, 23 August, 2014, 2:41am
UPDATED : Saturday, 23 August, 2014, 6:43am

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.

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This article is now closed to comments

captam
Here we go again. Every time some new social programme is mooted which will cost big dollars, some professor pops out of the woodwork calling for additional taxes.
We don't need more new taxes.
All we need is for those who should be paying taxes under current legislation to pay them fully. Billions of tax revenue is avoided annually by false declarations which are willingly signed off by complicit accountants. A pension scheme could easily be funded if we had an IRD which adheres to rigid tax enforcement.
The under-the- table "allowances" of up to 25% of company revenues be written off as "entertainment" expenses or on other questionable business "costs" is ludicrous. There is no good reason for company directors to have all of their living, holiday and entertainment costs dumped on their company accounts as expenses. The offshore company tax loopholes also need reigning in.
johnyuan
This universal pension concept is really unthinkable as recent as the last administration of Donald Tsang time.
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I praise CY Leung for facing the reality of aging and the problem associating with it that a large segment isn’t prepared. I hope the government would stand firm in resolving otherwise a ever growing social problem in the making.
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When people can’t save up much relative to what they earn and need to spend, it is a problem when one can’t work anymore. The society needs to be awakened from the hidden social problem embedded in exploitative salary with government turning a blind eye. Wearing the Heritage Foundation rating -- the freest economy yearly can’t at the end run away from its consequence.
DinGao
Nobody believes that residents over 65 should not be receiving a living income.
Those NOT receiving a living income through a pension, dividends, provident scheme etc MUST be looked after properly.
At the same time, a just and workable mandatory provident scheme or contributary pension scheme must be introduced.
As to increased taxation, a luxury goods ONLY sales-tax should be carefully considered along with an immigration arrival tax for anyone entering HK more than once in a 24 hour period.
virokick
Increasing taxes to fund a universal pension scheme is after all the hallmark of every developed nation. How can one country call itself civilised and developed if she ignores the elderly and needy.
2.5% recommendation is justifiable for now and it may eventually have to be increased as the population ages. If employers insist on not funding this, the government must insist on raising corporate and other form of taxes such as capital , dividend gains taxes.
HK has lost it's competitiveness economic -wise to cities like Singapore - that has a superior welfare system.
At least HK should not loose it's soul - to help those in need.
The Heritage Foundation or The HK General Chamber of Commerce will do nothing about sub-divided flats, the elderly picking up used card-boxes.
But it's the courage and conscience of an average HongKonger that must do it; or pressure our government to do it.
swami.vas
The proposed universal pension scheme sounds good especially to the needy but as the report says its sustainability is unpredictable. The projections may prove right or wrong but once the scheme is implemented the government has to treat it as a recurring expenditure. The suggestion to use the massive surplus to meet the pension expenditure is untenable. The payroll old-age tax recommended by the architect may face objection from tax payers and the employers but eventually they will all be benefited in due course. But one fails to understand why profit tax is exempted from the old-age tax. Some argue that profit tax is unstable and thus cannot be relied upon for a scheme such as the retirement pension. Fair enough though there should be other ways of getting companies too involved directly involved in some specific public expenditure as a part of their corporate social responsibility. Instead of the old-age tax, the corporate sector could be asked to pay a similar 2.5 per cent tax Education Tax exclusively to meet government expenditure on education which directly benefits the industry in the form of educated work force created by the system every year. At the end of the day, the retirement scheme carved out now after years of protests and public debate cannot anymore be shelved by the government as doing so could lead to more social unrest on this account!
53461a9b-4120-450e-a15d-35040a320969
Agree to have pension scheme, but mostly contributed by employees themselves and partly from richer and profitable company. The pension scheme should not be universal that some did not need such fund for their retirement.
But please the government regulates strictly the MPF, which have long time "contributed" the fund to the pocket of the bankers, but not the employees. This must be able to relieve the pressure of retirement policy.
If the gov't does not solve the problem as soon as possible, the burden will get greater and greater only and won't go away.
virokick
John...
I like the way you put it;...embedded exploitive salary and turning a blind eye.
More than half of HK does not support CY Leung , but the CE has shown his genuine intention and action to improve society's well being - on various livelihood issues.
We must fairly give The CE a thumbs up when -deserved, as you did here.

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