The government has started a six month period of consultation on the long-awaited universal pension scheme, but warned the implementation of the scheme may involve a steep tax hike.
The public consultation paper released on Tuesday is the first document issued for public discussion of a universal retirement protection programme since the handover in 1997. The paper outlines two approaches towards implementing the scheme. Under the “regardless of rich or poor” approach, every elderly person over 65 years old would receive HK$3,230 each month.
Chief Secretary Carrie Lam Cheng Yuet-ngor said that, under this approach, the cost would be HK$2,400 billion over the coming 50 years, and a structural deficit would occur six years earlier than expected. She also said that the financial reserves may dry up as soon as 2033, eight years earlier than the last estimation.
With this scheme, the standard salaries tax rate may have to be raised from 15 to 23.3 percent, and the profits tax rate may have to be raised from 16.5 to 20.7 percent, in order to cover the cost.
Not a fake consultation
Under the “those with financial need” approach, single elderly persons and elderly couples with less than HK$80,000 and HK$125,000 of assets respectively, would receive HK$3,230 each month. A structural deficit would occur one year earlier than expected.
It was estimated that around 250,000 elderly people, out of the current 426,600 who are receiving the Old Age Living Allowance of HK$2,390 per month, would fit the requirement.
The government said in the paper that it has “reservations” about the “regardless of rich or poor” approach, which may cost almost ten times as much as the “those with financial need” approach. It added that the latter approach would require a tax increase of less than one percent.
When asked by reporters if the government has already adopted a stance on which approach to choose, Lam said she “would not accept any criticism that this is a sort of fake consultation”.
“The government does not itself produce money, the money to support these sorts of programmes has to come from the people,” Lam said. “It would be irresponsible for the government not to state its position.”
Lam stressed that these approaches were not concrete proposals, that the figures were not produced to “scare the public” but to “engage the public in an informed debate”.
Nelson Chow Wing-sun, a retired University of Hong Kong social work professor, said the government was wrong in asking the public to choose between the options.
Chow’s team was commissioned by the government in 2013 to carry out a research study on the universal pension scheme. The “regardless of rich or poor” approach was one of the suggestions made by the team.
He said the approach would only incur HK$10 billion of extra cost per year, which is 2.5 percent of the government’s current annual expenditure.
“The public would have to decide whether that is acceptable or not,” Chow said that the approach could ensure that more than a million retirees in Hong Kong at the present moment would have a regular reliable income.
Chow said that the government did not explain clearly in the public consultation paper why the asset limit of the “those with financial need” approach was set at HK$80,000, which seems too low to cover all of those in need.
The figures given on tax increases were “nonsense”, and the government did not want to implement a universal pension scheme at all, he added.