Retirement protection: Who pays for granny?

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Rather than think about retirement protection as senior support or a public finance issue, Hongkongers should worry about how they might be forced to pay for it.

With one day remaining until the end of the government’s six-month public consultation on retirement protection, public debate over the topic is as intense as ever while new suggestions continue to roll in.

Although the government’s prescriptions have taken the centre stage during the consultation process, the existence of several competing proposals has offered Hongkongers the rare chance to envision a wide range of viable policy outcomes.

Seniors may be most concerned about whether they fall within or outside of the coverage scope of competing plans. But their families and other stakeholders should be more interested in comparing the proposals’ prescriptions for who will pay the bill. After all, no matter how long present-day beneficiaries will live, the rest of society will have to shoulder the burden for decades.

Non-official proposals

The latest major proposal, released by the pro-establishment Hong Kong Policy Research Institute (HKPRI) think tank on 19 June, aims to benefit 89% of the territory’s senior population, 60% of which would receive the maximum allowance of HK$4,000 per month. According to the drafters, this number represents a basic living expenditure threshold. Those whose income and returns on assets are less than this amount will receive an allowance to cover the discrepancy plus a rent subsidy.

Yet, with a considerable portion of the funding coming from a 3% sales tax, the plan will likely land squarely on the shoulders of the general population, with less affluent members facing the greatest burden. Other funding sources include HK$100 billion in government seed money and transfers from current elderly welfare expenditures, not to mention the issuance of HK$370 billion in government bonds to cover shortfalls through 2044, with interest payable from the public purse.

In contrast, a plan backed by 180 scholars, released in late 2015, would offer all seniors HK$3,500 per month. Unlike the HKPRI plan, this scheme might be less burdensome for the public, with 30% of the funding coming from existing MPF contributions, 50% deriving from returns on a HK$100 billion government injection, and a 1.9% profits tax increase for corporations with earnings of over HK$10 million.

Like Robin Hood, this plan is designed to put the burden on large companies rather than small businesses and the average Hongkonger. Although, as the below passages demonstrate, it is not the most damaging proposal for businesses – at least one government option would hit firms harder.

Official plans in the spotlight

For its part, the government’s two official plans have been under fire for months from social groups and academics, with some criticising the HK$80,000 asset limit of the means tested non-universal plan and others lambasting the doomsday-like financial projections that officials claim will result from the second plan option, a universal scheme. Both official plans would pay receiving seniors a monthly allowance of HK$3,250.

On the surface, the government plans look more open-minded when it comes to determining how the schemes would be funded. Officials have mooted several possibilities: a profits tax increase, a salaries tax increase, a goods and services tax, or a payroll old-age tax. The devil may very well be in the details.

The profits tax options would increase the burden for companies large and small, while the projected profits tax increase for a universal retirement protection plan is 2.3% higher the 180 scholars’ preferred option. Meanwhile, the salaries tax options would, unavoidably, impact middle class residents, the wealthy enjoying more non-salary sources of income.

The goods and services tax options would be likely to affect everyone, not to mention the potential political controversy of this option. The government’s last attempt to put in place a goods and services tax ended with the 2006 scrapping of the plan. As for the old-age payroll tax, each of the government’s options falls more heavily on employees than it does on employers, according to the government consultation document’s figures.

Read the fine print

None of these funding proposals is “right” or “wrong”. However, the average Hongkonger may wish to look beyond the much talked-about social implications of the universal vs. non-universal allowance debate and assess the burdens they will be forced to bear individually under each of the plans.

Will supporting some seniors come at the cost of paying for a child’s education or will bosses bear the burden? Will the funding come out of a monthly paycheck, or will we all be required to budget for a greater payment to the Inland Revenue Department at the end of the tax year?

If such questions make readers uncomfortable, then they should submit their views (here) right away. Most important, if the plan that the government ultimately chooses fails to meet their needs, they must decide how they will offer feedback. I hear a legislative election is around the corner….