Nelson Chow Wing-sun, a professor of social administration at the University of Hong Kong, has recommended a retirement pension of HK$3,000 per month for all Hongkongers over 65 in a report released by the Commission on Poverty. In his plan, the government should develop a HK$50 billion fund to assist with these payments. Concurrently, Chow recommends an old-age payroll tax should also be imposed on both employers and employees. Those who earn salaries in excess of HK$20,000 should pay 2.5 percent; between HK$10,000 and HK$20,000 1.5 percent, and between HK$6,500 and HK$10,000 one percent. This will help fund an improved retirement protection scheme, Chow argues.

It is likely that these taxes will not be welcome. Furthermore, this plan suffers from the problem of unsustainability. The first budget deficit of HK$800 million would appear in 2026. It would increase further to HK$13.5 billion in 2041, and then become unaffordable the following year. So if the plan cannot continue after 2042, it is clearly going to be a failure.

Some 139 pages of the study report in Chinese (with 43 pages of executive summary in both Chinese and English) does, however, provide a useful reference for society.

In tackling public policy problems such as retirement protection (which involve both social and economic issues) I believe in taking a holistic approach.

Firstly, a system of universal retirement protection may not be the best solution. In Hong Kong, entitlement should be limited to those who genuinely retire poor. And it should be different from the current system of "fruit money" - which is just a respectful payment to old people. If retirement protection benefits are paid to all eligible retirees, regardless of any other income they may receive, then a large number of affluent Hongkongers may get government assistance that they do not need. With no means testing, this sounds unreasonable. As to the eligibility requirement for retired people with Mandatory Provident Fund (MPF) scheme payments and other income, this should be subject to a means test. Those people with insufficient income, including MPF payments and other income, would be eligible for government assistance.

Secondly, the retirement age should be raised so that those who are healthy and willing to work can continue to do so. A semi-retirement scheme should be introduced for those who can only work on a part-time basis. Getting people off welfare and back into the workforce should always be a key goal of good governance. This would not only alleviate the burden on government to provide income for retirees, but would also boost Hong Kong's productivity. It may provide other positive benefits in helping alleviate problems arising from our aging population, low fertility rate and shrinking workforce. A number of surveys have shown that the poor would rather work than receive welfare payments. So for this reason, the government should try to make such arrangements work successfully.

The third is the sustainability of a retirement scheme. The government has to be prepared for a rainy day. Its HK$50 billion fund is probably too small; further cash injections may be necessary. The public may question the sincerity of its political leaders if sufficient funds are not available to cover future retirement payments. If the government is prepared to spend HK$200 billion on the need for a third airport runway, but is reluctant to spend further resources on retirement protection, this could spur a public outcry. With the imposition of eligibility requirements and the raising of retirement ages, we need to do the necessary math now to ensure retirement protection payments remain sustainable in the future.

Finally, there is the issue of taxes. It may seem unfair to impose a three tier scale of progressive salary tax on low and middle income earners, but it may be necessary to cover the cost of future retirement income. Additional corporate tax could also be introduced for companies who report substantial profits. Such arrangements would not contravene Hong Kong's low tax policy - as stipulated in Article 108 of the Basic Law. This is because, even with future tax increases, Hong Kong tax rates will still be much lower than most other countries. Some form of consumption tax on luxury items may also be necessary.

There are three goals for any tax system: first, to raise revenue for the government; second, taxes should be fair and reasonable and not hurt the business environment or impair economic growth; and third, higher tax rates should be imposed on the wealthy to narrow income disparities and improve social harmony. If the government were to use progressive tax rates for the rich, or super rich to help reduce inequalities in Hong Kong, then we would all benefit.

The author is a HK veteran commentator and professor at the Research Center of Hong Kong and Macao Basic Law, Shenzhen University.

(HK Edition 09/15/2014 page9)