Embracing the Challenges Ahead
133. The average life expectancy of Hong Kong people is continuously increasing. We must not overlook the challenges posed by an ageing population.
134. Last year, the number of elderly people aged 65 and over was 980 000, representing 14 per cent of our population. This proportion continues to rise. According to the latest projection, the number of elderly people will increase significantly to 2.56 million by 2041, representing 30 per cent of our population. As for the elderly dependency ratio in Hong Kong, ten persons of working age (i.e. people aged 15 to 64) supported one dependent elderly person financially in the early 1980s, but the ratio has dropped to five persons supporting one dependent elderly person now. After 20 years, the ratio will further drop to just two persons supporting one dependent elderly person.
135. The increase in the proportion of elderly population will result in a surge of expenditure on healthcare and welfare. Moreover, a fall in the proportion of working population will reduce economic vibrancy and slow down the momentum of economic growth. These developments will have profound implications for the sustainability of government revenue and public expenditure. Judging from the current demographic trends, our economic growth will certainly continue to taper off in the 2020s and the growth rate will be much lower than the trend growth rate of 4.5 per cent over the past ten years.
136. Our resource inputs in healthcare and social welfare represent 40 per cent of recurrent government expenditure at present. Take the spending on elderly care for 2012-13 as an example. The estimated expenditure in this area, including the provision of social security, elderly services and healthcare services, has reached $43.4 billion, accounting for 16 per cent of recurrent government expenditure. This spending will inevitably increase significantly with an ageing population because there will be a substantial rise in the demand for patient beds, residential care homes and community elderly care.
137. With an increase in the number of the elderly, a shrinking working population, reduction in the number of taxpayers and decelerated economic growth, I expect that the growth of government revenue will drop substantially if our tax regime remains unchanged. Meanwhile, expenditure on welfare and healthcare will soar. We may not be able to make ends meet. Some may think that the purpose of building up ample fiscal reserves is to provide a sufficient reserve capital for Hong Kong when our recurrent revenue is not sufficient to cover expenditure. I would say that this is not wrong but is a rather one-sided view. Of course, we can draw on our reserves to tackle short-term financial fluctuations. Yet fiscal reserves is not a regular revenue, it is all that we have at our disposal. The reserves can be exhausted. Prolonged depletion of the reserves to meet ever-increasing recurrent expenditure is not sustainable. Recurrent expenditure must be funded by sustainable revenue.
138. Apart from meeting our expenditure on public services, fiscal reserves also serve as a buffer in times of economic downturn. Take the five-year deficit between 1998 and 2004 as an example. Our fiscal reserves dropped from an amount equivalent to 28 months of government expenditure originally to a level of 13 months of expenditure in 2004.
139. Besides, we have not deducted the Government's known liabilities, commitments and various contingent liabilities from the fiscal reserve figure that is familiar to you. These include capital projects costing over $300 billion, guarantees of $100 billion and statutory pension with a present value of about $600 billion. Although we do not need to settle them in a lump sum within a short period of time, we must not overlook our liabilities and commitments behind the reserves when assessing the HKSAR's overall financial position.
140. Looking globally, many economies are also facing the problem of soaring public expenditure in the long run. Some countries use the resources available to plan for the future through saving up part of their fiscal surplus or other receipts and assets. I shall set up a working group to be led by the Treasury Branch. Scholars and experts will be invited to join the working group to explore ways to make more comprehensive planning for our public finances to cope with the ageing population and the Government's other long-term commitments. The working group will report to me by the end of this year.