Broader tax base needed or next recession might wipe out reserves, financial secretary argues The city's huge reserves could be drained when the next recession comes if the government cannot secure a stable source of income, Financial Secretary Henry Tang Ying-yen warned yesterday. Speaking to a 100-strong audience at a forum on the proposed goods and services tax, Mr Tang also warned that the ageing population, coupled with the existing 'narrow' tax base, meant one taxpayer would have to support 1.2 elderly people by 2030. The fiscal reserve totals about HK$300 billion, but the finance chief said: 'We used HK$190 billion from the reserves to survive the last recession. When the next economic cycle comes, the total deficit we face could be much bigger than HK$190 billion. We do not have much left to keep us afloat.' The government might be forced to incur higher debts or increase taxes greatly, Mr Tang told the forum, organised by the Business and Professionals Federation of Hong Kong, a government-friendly group which supports introducing a sales tax. The government has estimated that a GST of 5 per cent could bring in revenue of HK$20 billion a year. The financial secretary's warning came as he launched a new government strategy of 'returning to independent and constructive discussions' in an attempt to rally public support for the controversial tax, which opponents have criticised as 'robbing the poor to feed the rich'. With the economy starting to pick up, Mr Tang said now was the right time to discuss the new tax. But he sidestepped questions about what other options the government had in mind. Federation vice-chairman Edward Chow Kwong-fai, who spoke at the forum, said the existing tax system was unfair. 'Many retirees go to live overseas but will return to Hong Kong for treatment in case they fall ill. These people do not need to pay tax but enjoy our medical services,' he said. Another speaker, Stephen Cheung Yan-leung, an economist at City University, said there was an urgent need to broaden the tax base in light of the ageing population. Citing his own research, he said about 27 per cent of the Hong Kong population would be aged 65 or over by the year 2033, up from 10 per cent in 1996 and 12 per cent last year. His research also indicated that by the 2060s, 1.4 workers would have to support each elderly person. (Most Hong Kong workers do not pay salaries tax). The proportion would be higher than in other major Asian economies, including Japan, Singapore and South Korea. Louis Shih Tai-cho, vice-president of the Medical Association, urged the government to exempt basic necessities such as food from a GST to help needy families. But Mr Tang said definitions of 'basic necessities' could be very subjective. 'Some lower-income people like to drink beer after a day's work. To them, beer is a basic necessity.'