FS' "Letter to Hong Kong" on Budget (English only)

     Following is the "Letter to Hong Kong" on the 2015-16 Budget by the Financial Secretary, Mr John C Tsang, broadcast on Radio Television Hong Kong this morning (March 8):

Fellow citizens,

     I delivered this year's Budget about 10 days ago, and similar to previous occasions, the focus of attention fell once again on the one-off relief measures which took up only a small percentage of the entire package.

     I believe it is important for us to look also at the significant portion of our resources that is being spent on what we have been doing to cope with some of our future challenges. In particular, how we are going to deal with the imminent issue of ageing in the society.

     First, a few important facts. Hong Kong people enjoy a life expectancy that is among the world's longest. Right now, that means 81 years for men and 87 years for women. By 2041 - just over 25 years from now - the number of Hong Kong people who are 65 and over will soar from 1 million today - or 15 per cent of our current population - to 2.6 million, or 30 per cent of the population then. In the context of the working population, we are looking at the ratio of one person over 65 to five working persons now to only two working persons in 25 years' time.

     Equally remarkable, and perhaps worrying for some, 960,000 of us - yes, count me in, thank you, if I were so lucky - will be at least 80.

     More than just amazing, it will be both an extraordinary achievement and a monumental challenge. Give some sympathy to the people who will be Financial Secretary some 25 years from now. The FS will need to be budgeting for the medical services, social welfare services, transport services and more, I am sure, for 2.6 million people over 65 years old, including 1 million at the ripe old age of 80 or above.

     "Good luck with that" might be one response. "How do we plan for that?" is probably a more pragmatic approach. It's the latter that we have chosen, and this is the principal concern that has shaped the 2015-16 Budget.

     The Budget features, among other things, measures to expand health-care services now. Today. In 2015-16, we are making an annual allocation of $49 billion to the Hospital Authority. That's up nearly 50 per cent over five years ago. This refers to the annual cost for operating hospitals only. We are also making plans to build more hospitals.

     We have a number of projects either under construction or in the planning stage. They include the development of an acute general hospital in the Kai Tak Development Area, as well as the construction of the Tin Shui Wai and Hong Kong Children's hospitals. The Kwong Wah and Queen Mary hospitals are being redeveloped, and the United Christian Hospital is being expanded. In all, these projects will cost $80 billion, and provide 2,800 additional hospital beds, bringing the total number under HA's management to some 30,000.

     I am establishing a fund for HA to allow them to use investment returns for public-private partnership initiatives, including the extension of the General Out-patient Clinic Programme to all 18 districts in Hong Kong. I shall also provide loans to non-profit organisations looking to develop private hospitals, and make additional funds available for public hospital projects.

     Along with health care, welfare is also essential to helping those in need. In this year's Budget, we are making an annual allocation of $60 billion to cover social welfare recurrent expenditure. That's up by 60 per cent as compared to five years ago. This is the fastest growing sector in terms of expenditure growth, and is now the second largest after education. A large share of this amount benefits our elderly population directly. We have introduced a number of key initiatives in the past few years, and more are on the cards.

     For example, the Public Transport Fare Concession Scheme allows elderly persons to travel on almost all public transport for merely $2 per trip. This scheme, at the cost of $900 million per year to the public coffers, encourages elderly people to travel around the city to stay socially active. We introduced the Old Age Living Allowance in 2013 to supplement living expenses of elderly people. It costs over $10 billion annually. We have also increased our recurrent commitment to provide additional places for day care and residential care for the elderly. We have made significant progress so far, and we shall continue with our effort in this regard.

     You may also be aware that we have been examining the subject of retirement protection for some time, and the consultation will be rolled out in the latter part of the year. This subject will affect everyone in Hong Kong, and I hope that you will pay special attention to the issues of affordability and sustainability when you forward your comments. I have, in anticipation, set aside in this year's Budget $50 billion to help those elderly in need, and to provide better retirement protection for the people of Hong Kong.

     The challenge for the Financial Secretary 25 years later, of course, is more than just responding to an expanding elderly population. The FS has to make ends meet. The FS has to generate enough revenue to cover the increased expenditure.

     Yes, our workforce will begin to shrink in about four years' time, and so will our tax income. It will continue to fall steadily until the early 2030s, constraining our long-term growth prospects, and limiting our revenue growth potential. We are taking measures to mitigate the falling workforce and its debilitating effects on our economy by encouraging greater labour participation and enhancing the productivity of our workforce.

     The Budget includes $130 million to expand child-care services. This initial amount of assistance will make it possible for more women to join the workforce. And that can only help their families, and the Hong Kong economy. The Budget also includes $220 million to extend the Integrated Employment Assistance Programme for Self-reliance. In addition, there are measures to provide on-the-job training allowance under the Employment Programme for the Middle-aged. And the Employees Retraining Board will focus on older individuals as well.

     The key here is to maximise the potential of a valuable existing resource: Hong Kong people. To encourage and to enable more of them to join the workforce will help meet the needs of the community.

     With that in mind, I also encourage companies to be more flexible in their working arrangements, to allow people to work from home, as well as to provide more part-time and job-sharing options. I would like our firms to hire people based on competence, rather than setting an age limit. They should see the workers for what they can offer: experience, expertise and motivation. I can assure you, they will make a difference, given the chance.

     We should also save sensibly. Our fiscal reserve, about $820 billion now, is not just a piggy bank for rainy days. It generates a sizeable investment income year after year for public spending on sunny days as well. I am estimating $45 billion of investment income this year, which is equivalent to 10 per cent of our total expenditure, or 14 per cent of our recurrent expenditure. Without the investment income, it will be even more challenging for us to make ends meet in a few years' time.

     There has been quite a bit of discussion on the Future Fund. It is not intended to be some clever arrangement to lock away a portion of our resources in order to deprive the community of necessary services as alleged by some people. Not at all. The Future Fund is simply an investment strategy that helps bring about a higher return for our investments so that we are better prepared to deal with a period of difficulty in the future.

     As you can see, we are increasing our fiscal commitments in health care and welfare services in a gradual and sustainable manner to prepare for an ageing society. We are taking measures to mitigate a shrinking workforce and maintain economic vibrancy. We are also saving sensibly to generate more income for daily spending and better prepare for the rainy days. These measures require our concerted effort, and I believe that if we can continue to move forward in this direction, Hong Kong would be better prepared to cope with the inevitability of an ageing society.

     Thank you, and have a great Sunday.


John Tsang
March 8, 2015

Ends/Sunday, March 8, 2015
Issued at HKT 08:30