Broaden tax base to pay for universal pension scheme
Updated: 2016-03-01 11:19
By Peter Liang(HK Edition)
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Listening to Financial Secretary John Tsang Chun-wah talk about the need to broaden the tax base on Sunday, you may have been tempted to yawn and mutter: "Here it goes again."
Indeed, that was not the first time he raised the issue. In fact, he has done this almost every year after his budget speech. But this time, the matter has taken on a sense of urgency against the backdrop of the heated debate on the proposed universal pension scheme.
In a recently released position paper, the government unambiguously suggested that a scheme without any form of means test would be unsustainable without having to raise taxes. Predictably, this seemingly reasonable argument has touched off a storm of protests from workers' groups and social activists. They accused the government of being insensitive to the needs of the swelling ranks of struggling retirees.
The alternative to increasing direct taxes on salaries and profits is to broaden the tax base, which is exactly what Tsang was talking about. But previous proposals to introduce a sales tax, which is commonly applied in most developed economies, has met with stiff opposition not only from the business sector but also from social activist groups. They worry the tax will penalize particularly poor families required to spend a larger portion of their household incomes on the purchase of necessities.
Tsang is quoted to have said on Sunday that he could foresee problems in introducing the idea at a time when the government budget had continued to run a sizable surplus in each of the past many years. He may not have to wait long for the right time to reintroduce a sales tax because of the widely expected economic downturn that may last for several years from 2016.
In an earlier discussion on the tax, the government proposed to attach a statuary requirement to limit the use of the revenue from this particular source on financing public welfare expenditure. The inclusion of this same condition will be much more persuasive if it is accompanied by the undertaking to introduce a universal pension scheme.
(HK Edition 03/01/2016 page8)