Ballooning surplus means time ripe for universal pension
Many people see Hong Kong as being in the best of times; the economy is booming and asset markets are on the boil. The robust labor market is helping push up average wages for workers in various fields.
Indeed, demand for service-sector workers is so strong that the average basic wage of an unskilled worker in catering, for instance, has exceeded the minimum wage by a significant margin. Skilled construction workers now earn salaries comparable with those of middle managers and young professionals.
The stock market boom has greatly lifted the mood of the millions of retail investors, including many homemakers and pensioners. To be sure, rising property prices have been a major source of complaint from young people. But the hundreds of thousands of homeowners and investors are laughing all the way to the bank.
Even the retail sector, which took a hard blow from the decline in tourist spending, is showing signs of a sustainable recovery because of stronger domestic-consumer demand. Property experts now say shop rentals have bottomed out. Shops vacated by merchants catering mainly to tourists have largely been taken up by retailers of goods aimed at local customers.
The economic boom is widely seen to have opened a window of opportunity for the government to push through reforms that would give workers a fairer share of economic gains. Previous proposals to reform the woefully inadequate pension scheme faced stiff opposition from business people, arguing that the added cost would threaten the survival of many small to medium-sized businesses operating at razor-thin profit margins.
Small to medium-sized businesses — including many shops, caterers and contractors — comprise the biggest employer in aggregate with an estimated 60 percent of the workforce on their payrolls. More important is that these establishments provide jobs for the many thousands of unskilled workers who would have little chance of finding alternative employment.
Big businesses have a stake in maintaining the status quo because many have saved costs by outsourcing functions to contractors. They have used their political power to block any reforms that could raise operating costs in a business environment hobbled by sluggish economic growth since the outbreak of the global credit crisis.
The social cost of denying workers their rightful share of the economic pie is high at a time when income inequality has reached
Arguments from the business sector against pension reform are sounding less and less convincing as economic growth momentum gathers pace.
unbearable levels. Hong Kong has the widest income gap between the minority rich and the rest of the population among all developed economies.
Arguments from the business sector against pension reform are sounding less and less convincing as economic growth momentum gathers pace. To be sure, wages are also going up. But they are not rising fast enough to help narrow the income gap.
As the population is aging fast, the need to provide adequate pensions for the increasing number of retirees is becoming more urgent. With public coffers flooded by large budget surpluses, the government is seen to have the means to address the problems arising from worsening social and economic inequality.
Minor tweaks to the existing Mandatory Provident Fund are not going to satisfy demands of the public. That system is seen to be so flawed that nothing can be done to turn it into the credible social safety net Hong Kong sorely needs.
What the public want most is to scrap the scheme completely and have it replaced by a universal pension plan that can give retirees security. An earlier proposal to include a means test for such a scheme was shelved after stiff opposition from workers.
With fiscal reserves amounting to about HK$1 trillion, equivalent to more than two years’ budget expenditure, the government is finding it harder and harder to convince the public that their desired universal pension is financially unsustainable. Meanwhile, the large and swelling surplus has hardened the workers’ demands.
Against the backdrop of a robust global economy which is expected to continue beyond this year, the government may want to consider pushing through a scheme that can win workers’ support while resistance from the business sector is expected to soften when everyone is having such a good time.