March, 2008

Leaving Wealth with the “Rich”: A Budget for the “Poor”?

Jason Kin-wai TOO
Acting Director

Mr. John C. Tsang, the Financial Secretary of Hong Kong Special Administrative Government, delivered his first government budget for 2008-09 on 27 February. He announced an all-time high surplus of HK$115.6 billion (US$14.8 billion/ €9.6 million) and the fiscal reserves increased to HK$484.9 billion(US$62.1 billion/€40.4 billion) for the fiscal year 2007-08. As a motto of “Leaving Wealth with the People and Sharing the Fruits of Prosperity”, he proposes a series of concessions and allowances.

Who benefits, benefit to all?

The concessions, rebates and allowances seem to benefit all walks of life. For example, the government proposes to subsidize each domestic electricity account of HK$1,800 (US$230/€150) which amounts to HK$4.3 billion (US$550 million / €358 million). The Comprehensive Social Security Assistance (CSSA) recipients and Disability Allowance recipients will receive one additional month of standard rate CSSA payments and allowance respectively, together with HK$1.2 billion (US$153 million/€100 million). The government will also pay for one month’s rent for lower income families in public housing with a total of HK$1billion (US$128 million/ €83 million). In response to the request to increase the Old Age Allowance from HK$750 to HK$1,000 (US$128/€83), Mr. Tsang only promises to give each recipient with a one-off grant of HK$3,000 (US$385/€250). He also earmarks HK$8.5 billion (US$1.1 billion/€708 million) to provide a one-off injection of HK$6,000 (US$769/€500) into the Mandatory Provident Fund (MPF) account of people with less than HK$10,000 (US$1,282/€833) monthly salary.

Besides the allowances, there are the tax cuts on personal tax and profits tax. The one-off rebates to salaries tax and profits tax amount to HK$12.4 billion (US$1.6 billion /€1 billion) and HK$1.73 billion (US$221 million/€144 million) respectively. The standard salaries rate is lowered from 16% to 15%, which is reversion to the 2002-03 level. The government will receive HK$960 million (US$123 million/€80) less a year. However, the profits tax cut from 17.5% to 16.5% will cost the government $4.4 billion (US$564 million/€367 million) a year.

Mr. Tsang received applauses from his budget proposal for benefiting many of the people, including low-income families. However, queries raised by some human rights alliance like Civil Human Rights Front (CHRF) that the business sector benefits much more than the underpriviledged people. The business sector directly and indirectly benefits more than HK$21.6 billion (US$2.77 billion/€1.8 billion) while the underpriviledged people get only HK$5.6 billion (US$718 million/ €467 million). As we know, some of the allowance and subsidy ultimately go to the pocket of big corporate. For instance, the only two oligarchic electric companies will eventually get HK$4.3 billion (US$550 million/ €358 million) from the electricity subsidy. Some conservation groups worry the environmentally unfriendly effect that the subsidy will only encourage people to consume more electric power. The insurance companies and banks will manage HK$8.5 billion (US$1.1 billion/ €708 million) more and solicit management fees from MPF accounts.

Government Budget for Whom?

Mr. Tsang highly appreciates the vibrant economy of the territories, with a GDP (Gross Domestic Product) growth of 6.3% for 2007. The latest unemployment rate (4th quarter 2007) fell to 3.4%, the lowest since 1998. With an enormous amount of surplus and vibrant economy, it should be a golden opportunity to conduct a measure so that wealth can be fairly distributed among all walks of life. As we have seen, the rebates and allowance benefits more to the business than the underpriviledged people. However, the financial secretary declines to acknowledge the government’s active role to alleviate the structural rich-poor gap over the decades. He inherits the principle of “Big Market, Small Government”, popular among the business sector over the government’s fiscal policy. In his speech, he states,

“A big market can increase the share of the private sector in the economy and allow market forces to allocate our limited resources in the most efficient way for the maximum benefit of the community as a whole. A small government can prevent the public sector from acquiring excessive resources and thus reducing efficiency in the allocation and use of resources. Moreover, a small government can minimise regulation, thereby facilitating business operations and attracting overseas investment.” (The 2008-09 Budget Speech, para. 58, emphasis added)

Tsang also reiterates what the Chief Executive, Donald Tsang, has “stated in his Policy Address that the Government should not attempt to narrow the wealth [rich-poor] gap by redistributing wealth through high levels of tax and welfare. Such a measure would only inhibit people’s incentive to work hard and, in turn, undermine the productivity and competitiveness of the community as a whole.” (Budget Speech, para. 48)

Budget in the midst of Rich-Poor Gap

In John Tsang’s speech, “the wealth gap” becomes a euphemism for “the rich and poor gap” which he is reluctant to acknowledge. The government announces the Gini Coefficient, a widely accepted measure for the rich and poor gap, every five years. The latest figure in 2006 is 0.533, also a record high. It was 0.518 (1996) and 0.525 (2001). The SAR government is always proud of high position in various economic rankings, except this one. In a report from Hong Kong Council of Social Service in September 2007, they found that over 20 years the percentage of low-income households has increased from 21.5 % (2001) to 22.6% (2006), and people living below poverty line from 1.2 million (18.5% of the population in 2001) to over 1.3 million (20.1% of the population in 2006). More than 40% of the elderly (age 65 or above) live below the poverty line. For the 70,000 elderly who live alone, the rate is as high as 70.6%. The figures on poverty have a strong signal to the community: poor people do not benefit from the economic growth. They are the most vulnerable to the economic downturn and the least favourable from the growth. Government’s fiscal policy can make a difference to alleviate the poverty issue. Unfortunately, the proposed budget is biased to the business and the wealthy which only makes a wider gap.