Budget Speech by the Financial Secretary (4)

An Ageing Population

31. An ageing population is an internal challenge for Hong Kong that will have a profound impact on our community and economy.  The number of people aged 65 or above is expected to rise sharply in the next 20 to 30 years.  At present, one in eight persons in Hong Kong is in this group.  By 2033, only 25 years away, that figure rises to one in four persons.

32. Meanwhile, the working age population will begin to fall gradually after 2014.  The increasing elderly population will increase the burden on the working population.  At present, every two elderly persons are supported by about 12 people of working age.  By 2033, however, every two elderly persons will be supported by only about five people of working age.  This means that the burden on each working person will more than double.  Therefore, unless there is a substantial increase in labour productivity, an ageing population will lower our standard of living and undermine economic vitality and competitiveness.  We must make preparations now for the future.

33. An ageing population will also put immense pressure on public finances.  On the revenue side, the tax base from salaries tax will become increasingly narrow because of the decrease in working population.  At the same time, expenditures closely related to the elderly, such as medical, long-term care expenses and social security payments, will increase substantially.  Therefore, we must endeavour to enhance productivity, control expenditure and invest today in measures that will help to mitigate future pressures on public finance.

Production Capacity

34. An ageing population will impose limitations on the production capacity of the economy.  We must attract talented people from the Mainland and overseas to give fresh impetus to our economy and improve our population structure.

35. Since reunification, we have, through various schemes, attracted more than 200 000 talented people to Hong Kong.  We have recently relaxed the age limit and the requirements on language proficiency and work experience for the Quality Migrant Admission Scheme and the arrangements for non-local students to work in Hong Kong after graduation, with a view to attracting more talented young people to our city.  We will make better use of the Hong Kong Economic and Trade Offices around the world to step up the external promotion of the various talent admission schemes and the arrangements for non-local students to work in Hong Kong.

36. The Government has been investing heavily in education.  This has generally raised the education level of the local workforce and prepared us for further development as a knowledge-based economy.  In the long run, enhancing the skills and competitiveness of people of all ages through continuous efforts to raise their education level and encourage lifelong learning will help to increase our per capita productivity, thereby alleviating the problems caused by our shrinking workforce.

Demand for Health Care Services

37. An ageing population will bring about a substantial increase in demand for health care services.  Currently, nearly half of the total expenditure of the Hospital Authority is used to provide health care services for the elderly.  The cost of providing such services to the elderly is on average six times that for other groups.

38. On the other hand, advances in medical technology, the use of new diagnostic techniques, new drugs and new treatment methods all combine to continually drive up medical costs.  Because of these factors, it is expected that the increase in overall expenditure on health care services will, on average, be two percentage points higher than the actual economic growth rate in the next 20 to 30 years.

39. According to an external study, if the existing health care system were to remain unchanged, expenditure on public health care services would increase from $38 billion in 2004 to over $180 billion in 2033, an increase of almost 400 per cent in real terms.  The share of the cost of public health care services could increase substantially from the present 15 per cent of government recurrent expenditure to over 27 per cent.  Although we will increase the share of public health care expenditure to 17 per cent of government recurrent expenditure in the next few years, there is still a big gap between this figure and the forecast expenditure on public health care services for 2033.  If we do not introduce new financing arrangements, the provision of quality public health care services cannot be sustained.

Welfare Expenditure

40. The ageing of Hong Kong's population in the past decade has not been significant, with the percentage of the elderly population rising by only three percentage points.  However, government welfare expenditure on the elderly has increased steadily.  The operating expenditure of the Social Welfare Department on services for the elderly rose from $1.44 billion in 1996-97 to $3.08 billion in 2006-07, an increase of over 100 per cent.  The number of elderly Comprehensive Social Security Assistance (CSSA) cases increased by more than 60 per cent over the same period, and related expenditure surged from $3.59 billion to $8.28 billion, an increase of more than 130 per cent.

41. If the existing social security system were to remain unchanged, it is expected that expenditure relating to the CSSA, the Old Age Allowance and the Disability Allowance for the elderly would increase from the present $13.1 billion to $31.8 billion in 2033, an increase of over 140 per cent in real terms.

42. Ensuring that the Government is financially capable of meeting the health and welfare expenditure for the elderly in need is an issue that the Government and the community as a whole must understand and address.  We must make good use of every dollar from taxpayers and prepare for the future.

(To be continued)

Ends/Wednesday, February 27, 2008
Issued at HKT 11:23