Financial Secretary John Tsang warns that city needs to raise more revenue
Financial Secretary John Tsang Chun-wah issued a stern warning that revenue from taxes must rise if the city is to cope with rising expenditure brought about by an ageing population.
Tsang said the government's revenue level was unsustainable and it would eventually have to raise more revenue through taxes or other means.
The message was delivered ahead of the governmentappointed Working Group on Long-Term Fiscal Planning's submission of a report examining the city's public finances.
Tsang said he would announce the key conclusions of the report in the annual budget in February.
Giving a glimpse of the main points he expected the report to cover, he predicted that Hong Kong's economic growth would decline. He said that a shrinking labour force and an ageing population were precursors to a decrease in government revenue and an increase in expenditure.
In an entry on his official blog, he wrote: "These are recurrent expenditures, most of them being basic welfare, which can hardly be contained … One day we will have to deploy our reserves to maintain our public expenditure. And eventually, reserves will be used up.
"At that time the government will have to raise revenues by ways such as increasing taxes or issuing bonds. I believe these circumstances are not going to happen shortly. But they will come some day and we must prepare beforehand."
Tsang also predicted that the city's gross domestic product was unlikely to maintain an average annual growth rate of 4.5 per cent, as in the past decade.
Back in 2002, a report by a task force headed by then treasury secretary Denise Yue Chung-yee concluded that Hong Kong faced a structural deficit.
A separate government-appointed body called the Advisory Committee on New Broad-based Taxes, which was established in 2001, then recommended the introduction of a goods and services tax (GST) - a proposal the government later put forward for public consultation, but shelved following strong public opposition.
Despite the fact yesterday's warning sounded very similar to the one issued 11 years ago, a government source familiar with the issue said it was unlikely the current administration would bring up the GST proposal again.
However, it might look into the possibility of issuing bonds as a way to raise cash.
Economist Dr Andy Kwan Cheuk-chiu shared the financial secretary's view that the city's economic growth rate would slow down.
He said an annual GDP increase of 3.5 per cent was already encouraging, given Hong Kong was a very mature economy. But he disagreed that the government should raise cash through issuing bonds or simply increasing tax rates without widening the tax base.
"You can't live in debt. You will have to repay it eventually," he said. He also warned against the expansion of welfare, which put an increasing burden on the public coffers.