Voice in Legco
Voice in Legco - Guarding Against the Rise of Populism and Welfarism

Hong Kong is a capitalist society and its people have always attached great importance to earning our own bread. Why step backward and pursue welfarism, thus creating a financial time bomb for ourselves?


Improving people’s livelihood and seeking social justice are the duties of a civilized society. Social justice is different from welfarism, however. In recent months, many legislators have proposed a range of welfarist measures, including universal retirement protection, standard working hours and the establishment of a collective bargaining system, saying not a word about the exorbitant costs of these measures that society at large has to bear. There is worry that if society is not vigilant and rational, but ludicrously allows these welfarist policies to pass piecemeal into legislation, Hong Kongers will wake up one day to realize that our city has become a welfare society, something that will be bitterly regretted and extremely difficult to undo.


“Universal retirement protection” takes Hong Kong backwards

Take “universal retirement protection”, for example. The retirement protection system has been a subject of debate in our society for many decades. The idea of an “old age pension scheme” that pays a standard monthly amount to everybody over retirement age was shelved many years ago, and the Mandatory Provident Fund (MPF) scheme was eventually implemented instead. There have been many heated debates on this in the Legislative Council, after which the government has also carried out consultations, with data provided that casts doubt on the sustainability of plans that do not distinguish between rich and poor and shows that the resources otherwise allocated to needy seniors will be squandered. We are all too familiar with many of the arguments, which need not be repeated here due to limited space. But after going round in circles, still some people want to take Hong Kong back down this road under the new name of “universal retirement protection”. The main reason behind this is not any big changes of the factors in rational considerations, but is down to the rise of populism and welfarism.


The issue of having an aging population is not unique to Hong Kong. Pension systems all over the world are facing unprecedented serious challenges. A study published recently by the World Economic Forum suggested that human life expectancy has been increasing since the middle of last century, and that a baby born today is expected to live to 100. What is more, by 2050, the number of over-65s will have increased from 600 million today to 2.1 billion, which means the number of workers supporting each retiree will halve from eight today to just four. The eight countries with the largest pension systems, including the US, China, India and the UK, have a retirement savings gap of -USD70 trillion in 2015, and the gap is projected to grow to -USD400 trillion by 2050. If leaders fail to respond with measures including extending the retirement age and actively encouraging personal savings, the world economy may be unable to cope with the consequences.


Greek retirement protection is a ticking time bomb

Insufficient retirement protection is certainly a major problem, but we should bear in mind that overdone is equally bad as underdone. After the 2008 financial crisis, the PIIGS countries were riddled with crippling debts, precisely due to a bloated social welfare system that was beyond its economic means. According to an International Monetary Fund report, the Greek pension system is the biggest cause of the country’s deficit, accounting for 7.3% of annual GDP in 2010 and with spending expected to double by 2050 as its population ages. Even the OECD has labeled it a “financial time bomb”. Coincidentally, this month American businessman and investor Jim Rogers predicted there will be a terrible financial crisis in the next few years and the spark that ignites it could be the collapse of a pension fund, possibly an American one. According to a report by Forbes, state public pension plans in the US are underfunded by more than 10% or USD1 trillion.


High welfare and heavy taxation wreck economy

The logic is actually very simple: maintaining a high-welfare social system requires heavy taxation, but this will undermine work incentives and damage the business environment, leading to a shrinking private sector and economic stagnation. The United Kingdom in the 1970s is a prime example of this. The problem is that even if society as a whole is willing to pay more taxes, it may be unfeasible in reality. To pay for the National Pension in Japan, for example, it was agreed in 2012 that sales tax would be increased from 5% to 10% in two phases. But after it was initially increased to 8% in 2014, national consumption fell, triggering a recession in Japan. As a result, the second phase has been repeatedly postponed, currently until 2019.


Cherish Hong Kong’s low taxation and can-do attitude

The relevant motion of the Hong Kong Legislative Council just mixes several complex issues like elderly poverty and retirement protection together, then hail “universal retirement protection” as the panacea for the problem. But it is tantamount to closing our eyes and ignoring reality, pushing Hong Kong on the path to a welfare society. Although this motion was finally rejected after vigorous debate, I think it is more important that the general public are aware of the facts and think about the issues rationally.


Hong Kong is a capitalist society and its people have always attached great importance to earning our own bread and having a can-do attitude, which were the source of its former economic miracles. Article 108 of the Basic Law also sets out Hong Kong’s low tax policy. Confronted with an aging population, it is more important than ever that we maintain these competitive advantages. Why step backward and pursue welfarism, thus creating a financial time bomb for ourselves?


Hong Kong’s retirement protection system has always been to adhere to the multi-pillar development model initiated by the World Bank, with its four pillars of social security, the MPF scheme, private retirement schemes, and public support and personal assets. Since it was introduced more than 16 years ago, the MPF scheme has handled the savings and investments of more than 2 million employees, and a range of problems of the scheme, such as high fees, have been addressed along the way. As for the needy seniors, social security covers 74% of them, or 910,000 seniors. If the public still feel that this system needs to be improved further, proposals should be made, rather than blindly and recklessly adopting the populist approach of increasing welfare.


This is a free translation. For the exact meaning of the article, please refer to the Chinese version.

Should you have any comments on the article, please feel free to contact Mr Martin Liao.
Address : Rm 703, Legislative Council Complex, 1 Legislative Council Road, Central, Hong Kong Tel : 2576-7121
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Email: legco.office.liao@gmail.com