MR CHAN KIN-POR (in Cantonese): Thank you, Deputy President. Hong Kong is faced with the problem of population aging. I have been urging the Government to make good preparations for it for many years, and in recent years,the Government has been working actively, but its planning is still focused on healthcare and welfare, with little mention of financial preparations. Hence, I thank Revd Canon Peter Douglas KOON for proposing today’s motion, which has enabled us to examine the issue of public finance from a new perspective.
According to projections, the proportion of elderly people aged above 65 in the total population will gradually rise from 20% in 2022 to 35% in 2069, bringing a heavy burden to society. Meanwhile, Hong Kong has used a large amount of reserves to cope with the epidemic. Coupled with the impact of the weak economy and interest rate hikes, the post-epidemic recovery is below expectation. At present, Hong Kong’s fiscal reserves have fallen below the $700 billion mark. There are concerns in society that the Government will be unable to endure the financial pressure arising from population aging.
In fact, the Government must exercise fiscal prudence at all times. This principle is always correct. However, I am of the view that the current situation we face is a cyclical rather than structural problem. As long as the economy develops in a sustainable manner, public finance will return to healthy growth. Despite the drop in fiscal reserves, the Government’s debt ratio is extremely low. Currently, the outstanding debt balance stands at about 4.5%. Even with more bond issuance in the pipeline, it will only rise to about 10% by 2027, which is still an extremely low level. At present, bond issuance is used by major economies as a major means of public financing. According to the data of the International Monetary Fund in 2022, the debt ratio of Japan was 260%, that of Singapore, 140%, and that of the United States, 120%. Please do not forget, as I mentioned just now, Hong Kong’s debt ratio will be only 10% by 2027. Therefore, we need not be over-worried, and we should also get that Hong Kong’s financial position is actually very healthy.
The Basic Law has stated expressly that Hong Kong should keep the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance. While complying with the Basic Law, we also need to think about how to increase the flexibility of public finance. Singapore’s debt ratio is as high as 140%, but its bond issuance is mainly used for investment and development, which is a proactive financial management strategy, rather than a way to meet the shortfall arising from excessive spending. In recent years, Singapore has developed at a high speed with the Government’s strong financial management, and bond issuance is one of the key factors. I believe that the original intention of the provision in the Basic Law on keeping the expenditure within the limits of revenues is to require the Government not to be a spendthrift or a big waster, rather than to restrict the development of Hong Kong. Given the rapid changes in the global economy nowadays, Hong Kong must invest for the future. Since its assumption of office, the current-term Government has done a lot of work, including promoting innovation and technology, integrating into the overall development of the country, tapping business opportunities under the Belt and Road Initiative, investing in infrastructure, and improving the business environment. Even though plenty of resources have to be injected, the direction of development is absolutely correct.
Hong Kong has all along been beset by the problem of the excessively narrow tax base. At present, the slow economic recovery and the reduction in tax revenue have accentuated the financial pressure faced by Hong Kong. In the past, the Government had examined the issue of broadening the tax base and put forward such proposals as the introduction of a sales tax and a land and sea departure tax, but the introduction of new taxes would inevitably attract social criticisms. Besides, the Government had long been politically weak without sufficient political strength to develop new taxes. In the face of the current financial pressure brought about by population aging, it is. unavoidable to open up new sources of revenue in the long run. The Government should start the studies afresh, including exploring the possibility of introducing a sales tax, since Hong Kong is the only developed economy which does not levy any sales tax.
In the study conducted in 2000, the Government proposed to levy a 5% sales tax. Back then, it was estimated to generate a revenue of $30 billion. Now that retail sales have doubled, I believe that the tax revenue will also increase substantially. Despite the consideration that a consumption tax may dampen consumer sentiment, if the study findings indicate that the benefits outweigh the disadvantages, the Government should also consider the impact on the industries when introducing the new tax, and provide assistance to the industries in need. At the same time, it should also draw reference from Japan’s practice and state clearly that the tax revenue will only be used for specified items, such as medical benefits for the elderly, in order to gain public support.
Some economists have pointed out that Hong Kong can alleviate the population pressure simply by increasing its labour force. As a matter of fact, in recent years, the Government has been bringing in labour at different levels in view of such circumstances, including the introduction of the Top Talent Pass Scheme, Graduates, and new labour importation schemes. However, Hong Kong also needs more international professionals to maintain its international characteristics, and the Government still needs to make more efforts in this regard.
Thank you, Deputy President.