Jul 2, 2014

Hong Kong universal pension: Wrong to link pension to more tax

It is great news that Hong Kong is considering a universal pension for every old person.
The time is ripe for a universal pension but it will be painful to the taxpayers and wage earners. Still, government-appointed consultant Nelson Chow Wing-sun said he will bat for a universal pension to give retirees a more stable income in his report to be submitted to the government today. "If the community misses this chance [for a universal pension], it will be hard to raise it again in future," said Chow, chair professor of the University of Hong Kong's social work and social administration department. (Now or never for pension scheme, wn.com, June 2014)
However, it is very wrong to link pension to additional income tax. In general, it is wrong to link any expense of a government to income tax. A government usually pools all monies collected into one bag, and expenses are paid from this bag. Usually, there is no clear link from any source of money to any expense.

So it is not logical to link a particular expense to tax. unless the intention is to frighten the tax payers. Of course, many politicians do exactly this: Do you want to pay more tax to fund this (anything not in their favor)?

In the above video (1:40), it is explained that the universal pension of $4000 each will add to a total of $48 billion.

It then proceeds to link the universal pension to increase tax on workers. This is the unnecessary and illogical part. The Hong Kong government has its own responsibility to find this money, and not necessarily from increased tax on workers.

How about funding from common wealth? Common wealth belongs to the citizens, and it will be good to return the money.

A quick look at Hong Kong's budget shows that there are lots of money from common wealth.

Hong Kong has a reserve of $741 billion. They estimate return of 3.7 to 6.2% per annum. The investment return from the reserve could cover at least 60% of the universal pension.

Another interesting item is the huge surplus. For example, for year 2012-2013, there is a surplus of S64.9 billion. This is more than enough for the universal pension. There is no need for more tax.

The conclusion is that Hong Kong can afford the universal pension without sourcing it from tax.

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