Back pay intended to boost spending

PUBLISHED : Tuesday, 10 August, 1999, 12:00am
UPDATED : Tuesday, 10 August, 1999, 12:00am

The Finance Ministry spent more than four billion yuan (HK$3.7 billion) in back pay for civil servants last month in a bid to boost consumption, but the move has yet to show an impact, according to one economist.

All civil servants got a 30 per cent pay rise in July, back-dated to January, a senior economist at the State Council Development Research Centre said.

'About four billion yuan was allocated to eight million civil servants, 28 million staffers of administrative units and five million military and armed police force officers in back pay,' said the economist.

The wage of a director-grade official is about 600 yuan (HK$558) a month.

Since the basic salary for most of the officials ranged from 300 to 500 yuan, most officials got back pay of 100 to 150 yuan for each month, he said.

'Leaders and senior economic officials hoped the new salary and the back pay would give incentives for government-paid staff to consume,' he said.

But the lump sums had yet to register an increase in consumer spending.

'The consumption pattern in July remained stable and we had not seen much impulsive new spending because of the back pay,' the economist said.

One reason was that the salaries of officials were very low and the back pay was not big enough for most of them to buy major consumer items.

However, he hoped the rise would gradually show an impact later in the year.

The pay increase would be officially announced in October to mark the 50th anniversary of the establishment of the People's Republic.

The Government has decided to impose a new tax on interest earned on bank deposits as part of its efforts to spur consumption and boost the faltering economy.

The economist said the deposit interest tax, effective in October, would be 20 per cent on all mainland savings.

'This is a controversial measure, but the leaders believe it will not upset stability and will be an effective measure to force savings out of the banks,' the economist said.