Hong Kong faces same tough tax choices as Singapore, academic says

Academic says shrinking labour force means either productivity or taxation must increase

PUBLISHED : Tuesday, 28 August, 2012, 12:00am
UPDATED : Tuesday, 28 August, 2012, 3:20am

Hong Kong faces the prospect of steadily rising taxes, just like Singapore, if it does not increase productivity in the face of an ageing population, an expert warns.

Paul Yip Siu-fai, a professor in population policy at the University of Hong Kong, said this was the likely scenario if the government did not invest in education and occupational training to boost productivity.

"We have a shrinking labour force, meaning fewer taxpayers. Given the narrow tax base, a tax rise seems to be unavoidable."

Singaporean Prime Minister Lee Hsien Loong said in his National Day Rally address on Friday that the city state's government would need to raise taxes to boost social spending on its ageing population.

"As our social spending increases significantly, sooner or later, our taxes must go up. Not immediately, but … within … 20 years, whoever is in government will at some point have to raise taxes because the spending will have to be done," Lee said.

He said the government drew S$8 billion (HK$50 billion) from returns generated by its reserves in the last financial year, exceeding the amount it collected from income taxes. "It's helped us fund many new programmes and still balance our budget without having to push up taxes sharply," he said. "We have to draw from the reserves in a sustainable way."

Singapore will invest more in kindergartens and old people's homes. It will also consult the public on measures to increase its fertility rate of 1.2 (which means the average woman bears 1.2 children, far short of the rate of 2.1 deemed necessary to maintain developed countries' populations). Hong Kong's fertility rate was similar last year.

Ideas being considered include flexible work arrangements, priority housing for couples with young children, and improving cash benefits for having children.

Hong Kong Taxation Institute president Philip Hung said there were other options for Hong Kong, given its large foreign currency reserves.