Deficit in 15 years if status quo maintained in education, social welfare and health spending

'No room for complacency,' government task force warns

PUBLISHED : Monday, 03 March, 2014, 6:54pm
UPDATED : Monday, 03 March, 2014, 6:54pm

A government task force has warned of a structural deficit within 15 years even if policies for the education, social welfare and health sectors are maintained at the existing level and expenditure grows merely with price and demographic changes.

The working group on long-term fiscal planning issued the warning yesterday as it rolled out a series of measures needed for the city to maintain a healthy fiscal outlook.

If a structural deficit were to be avoided, the task force says Hong Kong would need a real Gross Domestic Product growth of 3.1 per cent per year under this scenario where policies remain unchanged.

“Since the labour force is expected to dwindle as from 2018 under an ageing population and existing population policies, a trend GDP growth of over 3 per cent per annum is exceedingly hard to achieve under current policies,” the report says.

It also says that there is “no room for complacency”.

The task force has forecast the growth of different categories of government expenditure, assuming there is no inflation and no policy changes.

The recurrent subvention requirement of the Hospital Authority is forecast to go up from HK$47.2 billion in 2014-2015 to HK$85.6 billion to 2041-2042, from HK$14.6 billion to HK$36.4 billion for Old Age Living Allowance during the same time period, and from HK$6.2 billion to HK$16.2 billion on welfare services for the elderly.

The task force has rolled out a series of measures that it says will maintain a healthy fiscal situation. “The working group sees the need to contain overall government expenditure growth within the forecast nominal GDP growth rates and to keep the public expenditure at or around 20 per cent of GDP,” the report says.

The task force says the sustainability of funding recurrent initiatives of more than HK$100 million should be reviewed.

The group also recommends that the priorities on the revenue side are to preserve, stabilise and broaden the base.

The government should avoid excessive reliance on direct taxation and enhance the tax regime to ensure that the tax structure can meet the long-term needs of Hong Kong, the task force says.