Hong Kong looks abroad to tackle burden of ageing society

Working group mulls the idea of future funds, used in Australia and New Zealand, to cope with the fiscal challenges of a greying population

PUBLISHED : Monday, 11 March, 2013, 12:00am
UPDATED : Monday, 11 March, 2013, 11:03am

Hong Kong is looking overseas for inspiration on how to cope with the long-term financial burden of its rapidly ageing population.

In his budget plan last month, Financial Secretary John Tsang Chun-wah set up a working group of treasury officials and experts to make public finance projections for the coming decades.

The group will study related policies implemented in other countries before submitting a proposal to the government by the end of the year.

One of those policies is the future fund, as used in Australia and New Zealand, a source close to the government told the South China Morning Post last week.

"In short, it is a large sum of reserves that is locked in by law to be used only in the future," the source said.

Both countries established funds in the last decade to manage the fiscal challenges posed by their ageing populations.

The Australian Future Fund, which was set up in 2006, aims to strengthen its government's long-term financial position by providing for unfunded retirement liabilities.

The fund receives contributions from budget surpluses and the sale of the government's shares in Australian telecoms giant Telstra.

By the end of 2008, the fund held A$60.5 billion (HK$480 billon), which cannot be used until July 2020.

New Zealand's Superannuation Fund is similar.

Set up in 2003 with NZ$2.4 billion (HK$15.2 billion) the fund seeks to ease the tax burden of future pension costs among generations of its citizens.

As of last month, the fund held NZ$21 billion (HK$139 billion) from government contributions and investments.

The New Zealand government can begin making withdrawals from the fund to help meet its needs from 2029.

Meanwhile, the Canadian government appears to be taking a different route in managing its ageing population's fiscal needs.

Its finance department recently called for "targeted actions" to return to balanced budgets over the medium term.

The proposed measures include reducing growth in defence spending, capping international aid and freezing department budgets for two years.

Its report read: "Population ageing is expected to lead to lower growth in output and income … [It is also] expected to reduce the growth rate of government revenues … thereby limiting the capacity of governments to continue to finance growth in public expenditures at rates as high as in the past."

In the case of Hong Kong, Tsang has forecast that the proportion of those aged 65 and above will increase from 13.7 per cent of the city's total population last year to 30.2 per cent by 2041.

And this would translate into a substantial decrease in government revenue as a result of slower economic growth and fewer taxpayers, while social welfare and health-care expenditure soars.

Under this scenario, "the government may not be able to make ends meet", Tsang said in his budget plan last month.

Francis Lui Ting-ming, a University of Science and Technology economist, said many studies pointed to the risks of an ageing population, but the government had yet to properly addresses the issues.

"It is not difficult at all to predict an ageing population," he said, noting that the city saw a decline in its working population for the first time last year.

"But it [the problem of an ageing population] is like a chronic disease such as diabetes, which will always be overlooked and overshadowed by more imminent health problems such as heart attack," he said.

Lui is also a member of the population policy steering committee headed by Chief Secretary Carrie Lam Cheng Yuet-ngor.

He said that the government should clarify the roles between his committee and the working group that was announced by the finance secretary.