Benefits are easy to give out, difficult to cut back
The hottest policy issue last week must be whether or not the age that qualifies someone for the elderly CSSA should be raised from 60 to 65. Under a proposal, announced by the Hong Kong government on Jan 7 in a press release, those below the age of 65 will only be able to get the CSSA stipends for healthy adults. This would mean HK$1,030 less per month. The proposal caused an uproar among Legislative Council members and strained the chief executive’s relations with legislators.
It appears that perceived fiscal pressures may be behind the proposal. As I have maintained in an earlier article in this column, the government may well be facing the prospect of a budget deficit in the years to come. With property prices and land prices softening, and with low property transactions, revenues from stamp duties and land sales will drop, as will the profit tax proceeds from developers and related industries. Pressures will also be aggravated by the proposed increase in the ratio of public flats to private flats to be built on any new supply of residential land. Land designated for private flats of course will boost revenue. Land designated for public flats, particularly public rental flats, will not. Even if the public flats are for sale, because the price mark-down is to be changed from 70 percent of the market price to possibly less than 60 percent, the Housing Authority (HA) will have lower revenue from flat sales. Moreover, because fewer and fewer Home Ownership Scheme owners choose to repay the owed land premiums; instead, they prefer to sell their flats in the HOS Secondary Market to qualified buyers without repaying the land premium, the HA will expect pressures on its bottom line.
For all these reasons, I am not surprised that the government is finding ways to reduce its expenditures and to raise its revenues. Not long ago it announced its wish to allow owners of properties to claim rates concessions on only one of their properties. Raising the qualifying age for elderly CSSA to 65 is just another way of balancing the budget.
Still, I would propose that the government not force the issue. First, it is politically too costly. Second, as the number of people disqualified from the elderly CSSA is not much more than 2,000, the total amount saved is really immaterial.
The government needs to recognize that tightening benefits is always very difficult. Late into last year, protests against Russia’s pension reform and similar protests against Belgium’s pension reform hit the headlines. In Argentina, similar protests were launched in 2017. In each of these cases the government had little choice to do otherwise as the pension plans were not sustainable without the change. Thus downgrading benefits is already difficult even when the government already has a budget deficit.
The “yellow vest” protests are another case in point. While the grievances of the protestors are deep-seated, the trigger was French President Emmanuel Macron’s proposal to raise the price of diesel by almost 20 percent purportedly as a The author is the dean of business at the Chu Hai College of Higher Education. move to motivate people to use greener forms of fuel. The movement is now seen as a protest against a pro-rich president. It has now evolved into a demand for Macron to step down.
The sad thing about Macron is that he was trying to put right what had been put wrong. The important lesson for Hong Kong is to avoid the wrong in the first place.
When Macron came to power in 2017, he replaced the wealth tax that had led to an outflow of millionaires numbering 12,000 a year. Instead of a tax on all asset classes, the French government would only tax property, and would tax only 70 percent of the market value of the principal residence. Former president Nicolas Sarkozy had introduced an “exit tax” in the form of a tax on capital gains on assets sold up to 15 years after having left France. Macron replaced it with a tax that targets at assets sold within two years after leaving France. The whole point was to lure the rich to stay. If the richer people leave the country by large numbers, the tax base will be eroded, investment could fall, and the country may not create enough jobs and sustain its benefits to the masses.
Macron may be doing what is necessary to revive the economy, where the unemployment rate is still above 9 percent, but he was portrayed as being a president for the rich and not for the masses.
From this we can draw two conclusions. Giving out benefits is easy, cutting back benefits is difficult. Imposing excessive taxes are easy, but cutting back could be seen as pro-rich.
Although fiscal pressures may mount in the coming years, raising the threshold age for the elderly CSSA is just not worth it. On the other hand, guarding against introducing policies that will become unaffordable over the longer run is important. Increasing taxes on those who have higher ability to pay is important, but the bottom line is not to overdo it. I do not think that limiting rates concessions to just one property per taxpayer is overdoing it.