Is the latest health-cost scare a trial balloon for GST?

Hong Kong will have to spend much more than expected on elderly health care in future, according to revised government predictions that show previous estimates were far too low … the government's fiscal advisers ... added that tax changes seemed inevitable to meet the cost.

South China Morning Post,
August 29

Let's deal first with questions of exactitude in the numbers. I cannot make out whether this (it-just-happened-to-happen) leak by officialdom was expressed in nominal dollar-of-the-day terms or inflation-adjusted real terms.

For instance, we have mention of a 3.3 per cent economic growth rate, which is a figure in real terms, and then of 3 per cent growth in a $48.8 billion health bill, which is a figure in nominal terms. Let's get this straight, shall we, folks. It makes an enormous difference when we're talking figures up to the year 2041.

And then there's the question of how much these population projections can be moved up and down by public policy changes. When our chief executive tweaked the rules on mainland women giving birth in Hong Kong, our statisticians had to make notable changes to their population models.

Just how certain are we of border-crossing policies and practices in 20 years' time? What other population trends might evolve? Our guesses 20 years ago of what we would see in population numbers today have proved wildly off the mark. This is crystal ball gazing in a mighty cloudy crystal ball.

What also strikes me is the mention of tax changes. Do we have a stalking horse here for another attempt by the government at introducing a goods and services tax?

The last time it was tried, the response was so negative that the people who pushed it had to back away from it on the run. Any move to try it again would have to be very tentative. It would certainly be introduced by unattributed leaks to provide room for denials.

And guess what we have here.

I mention it in particular because I cannot see why this latest health-cost scare is really all that scary. Yes, we have an ageing population with over-65s now accounting for 14 per cent of the population, up from 9 per cent 20 years ago, and the ratio is certain to continue rising.

But then, look for comparison in Italy, where 21 per cent of the population is now over 65, or the real leader of the trend, Japan, where the figure is now 25 per cent.

What's more, we have free fiscal savings of HK$1.5 trillion, comprising accumulated government surpluses, surpluses of statutory bodies, and accumulated investment profits. This amounts to HK$210,000 (US$27,000) for every man, woman and child of our population.

Japan, in contrast, has a net government debt of 1,008 trillion yen (HK$79.6 trillion), or US$81,500, for every member of their population. That's debt, not savings. I don't have a government debt figure for Italy, but I do know it's more than the country's gross domestic product.

So just who really has a problem?

It's true some of our fiscal savings are committed, most notably in civil service pension obligations. But we're also now well along on a programme of moving the civil service from defined benefit to defined contribution pension plans. This process will be completed well before old-age health care can become a real problem.

We simply face no serious fiscal difficulty here as long as we do not fritter away our fiscal savings in pointless infrastructure projects. It really does look to me like a trial balloon for GST.

Anyone got a pin?

jake.vanderkamp@scmp.com