Finance chief should use budget surplus to help the most needy

Financial Secretary Paul Chan Mopo is inviting Hong Kong people to tell him what they expect from the 2018 Budget. The invitation came at a time when the public coffers are flooded with cash. Income from last year’s sales of government land alone is estimated to have amounted to HK$120 billion.

As in previous years, the question of greatest public interest is how the finance chief will spend the bumper budgetary surplus, other than the usual payouts to the underprivileged and tax rebates to benefit the middle-class.

These one-off budget sweeteners are beginning to lose their charm as they are seen to have done little to solve the nagging problems of economic inequality and ease mounting social discontent, especially among younger people.

Some economists have argued that economic inequality is a symptom of a dysfunctional economy. By the most popular yardstick, Hong Kong has the widest income gap among developed economies. That’s because the Hong Kong economy is more dependent than others on capital rather than workers’ productivity to generate growth.

For that reason the stock- and propertymarket boom, though helping to boost government revenue, brings disproportionately large benefits to the rich who hold capital than the average worker. Despite a persistently low unemployment rate, average wages have remained static for many years.

What’s more, to maximize shareholders’ returns, many major companies are trying to control overhead costs by outsourcing a large portion of their backroom functions to contractors. These contractors, mostly smallto medium-sized enterprises, survive by keeping labor costs down to compete with each other for business.

The government has proposed a tax cut to help small-business owners. But there is no guarantee employees of these businesses can benefit from the tax savings.

A long-term solution lies in government efforts to diversify the economic base by promoting development of the technology industry through subsidies and other incentives. But these efforts, if successful, will take years to bear fruit.

Despite the complexity of the issue, there is much the government — with fiscal reserves amounting to nearly HK$1 trillion — can do to redress the economic imbalance.

For years, economists and labor activists have contended that the most direct way to help workers is to raise the minimum wage. First introduced in 2011, the statutory minimum wage was raised to HK$34.50 per hour this year from HK$32.50. Labor groups considered the increase too low to reflect economic growth momentum in coming years.

The increase was in line with price inflation, excluding housing, but has done little to raise the living standards of many working-class families who live in sordid subdivided flats in rundown neighborhoods.

It may not be feasible for the government to call for a review of the minimum wage so soon after it was last revised. What the financial secretary can do is set aside part of the surplus to raise direct subsidies on a recurrent basis for the working poor. These subsidies have to be large enough to help raise these families’ living standards.

Then there is the issue of a proposed universal pension scheme. Experience in other developed economies, notably Singapore, has shown an adequate pension scheme that guarantees a set income for the retiree can help blunt the sting of economic inequality.

The rapidly aging society of Hong Kong has made it all the more urgent for the financial secretary to work out a sustainable scheme that removes the need of any means test for public discussion. An all-inclusive pension scheme is definitely high on the most-wanted list of the public.

It is important to bear in mind that Hong Kong’s fiscal reserves, the accumulation of annual budget surpluses, belong to the public. At its present size, the reserve fund is many times more than needed to cover any imaginable contingency or seasonal budget shortfalls.

As a former financial official said, too large a reserve is not necessarily a good thing. It benefits no one even when it is earning interest income.