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Financial Secretary John Tsang has been a target for criticism ever since he rightfully upheld the principle of fiscal prudence in his latest budget. However strong their arguments are, his critics can't brush aside the fact that an aging population will inevitably put a strain on the sustainability of the city's public finances.

The number of elderly people aged 65 and over will surge from 980,000 currently, or 14 percent of the total population, to 2.56 million by 2041, or 30 percent of the population by then, according to official estimates.

There are two time-tested implications from these demographic trends: The rising ratio of elderly citizens will result in a surge in expenditure on healthcare and welfare, while a fall in the working population will dent economic vibrancy, slow economic growth and reduce tax revenue. These factors will put pressure on the public finances.

This will leave the government no choice. It will have to consider new tax measures to maintain fiscal sustainability in the medium to long-term.

Broadening the city's narrow tax base by introducing some new taxes is sensible and reasonable. The financial chief has been criticized for frequently underestimating fiscal revenues. He may have done so deliberately for the sake of upholding the principle of fiscal prudence enshrined in the Basic Law. The narrow tax base has been partly blamed for fluctuations in the government's fiscal revenues - thus necessitating more conservative estimates by Tsang.

Japan is setting an example for Hong Kong. Its deteriorating fiscal situation, partly due to its aging population, has forced the Japanese government to once again raise consumption tax from this month.

But the idea of raising taxes will not be welcomed by Hong Kong society, as Tsang noted in his speech about fiscal sustainability on Wednesday.

The severe divide in Hong Kong society due to the widening wealth gap and wrangling over political reform will only make any new tax proposals more controversial.

The government is wise to abstain from initiating any tax move when political divisions remain strong. But constructive discussion should continue to prepare citizens for inevitable tax hikes in future.

(HK Edition 04/03/2014 page9)