Friday, April 8, 2011

Universal Pensions - Should have been an April Fools

Tobias Higbie. "Why Social Security?" Social Security Administration pamphlet: 1937.
Tax Freedom Day indicates how long people must work before earning enough money to pay the year's tax obligation. It arrived April 12 in the USA this year, and has just past, on April 6th, in Australia and will finally arrive on May 30 in the UK. For 60% of Hong Kong residents, their tax day is on January 1st, as many don’t pay any taxes at all. The 40% who pay taxes have a much smaller burden than their peers in other nations, but that is set to change if political parties get their way and introduce a Universal Pension.

Most advanced economies around the world can’t realistically pay for their pension pledges. The fiscal insolvency has led many wage earners to expect to work longer, pay more towards their own health care and receive less than they paid in to pension plans.

These nations’ taxes are relatively high, but in spite of these levels, cities around America and the EU are running out of money, leaving pension funds dry and insolvent. In the global recovery, we’ve moved beyond a job’s crisis.
American taxpayers this year are doubly saddled in that they spend more paying their taxes than the total they spend on groceries, clothing and shelter – and most pre-retiree workers are pushing back their retirement age – they will retire without the benefits that they themselves paid into. 

When political parties promoted a Universal Pension, I first mistook it as an April Fool’s joke – only it wasn’t. These parties might believe they gain votes from promoting what has been a curse overseas, but most of the public is well informed, with media stories covering a woeful middle class overseas who now need to work past retirement.

Clearly, the Universal Pension is not a solution. Hong Kong’s tax system would be vastly altered to fund the pension. The current population of residents 65-and-older stands just above nine-hundred thousand, and if implemented this year, a monthly pension of HK$4,000 would cost the Government at least 40 billion.
Hong Kong has an ageing population, with the numbers of people 65-and-older doubling in the year 2030 to 2.1 million. In 2030, this cost jumps to HK$100 bn a year. Politicians haven’t come out right and said it, but they are serious about greatly increasing taxes to pay for a pension plan, speending Hong Kong down the road to a welfare state. Of course, who pays for these increases are taxpayers, wage earners and the middle class. There were complaints that the $6000 handout wasn’t enough to help low-middle-income families, but the Universal Pension essentially is asking that this same group pay taxes twice. 
Further economic hardship will be borne when companies pull out of Hong Kong as Hong Kong’s competitiveness severely taxes a hit. 

It would be unwise to believe the Government can afford a Universal Pension, and further to believe the Government could manage it. The public and the government stamped the MPF as a failure with the u-turn in the handout to a cash giveaway. The MPF illustrates the disaster that lies ahead when the Government tries to manage residents’ savings. Despite muted warnings, much legislation thus far implemented has plagued residents with black swans and unknown unknowns. With Universal Pensions, however, the warnings are as loud as monolithic economies hitting rock bottom; there is no shortage of evidence detailing the chaos endured, the sheer costs and economic devastation hitting their citizens.

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