No pain, no gain
The drain on the public purse due to the cost of the civil service - long a controversial subject in Hong Kong - is easing. Spending on the civil service in 2001-2002, at $71.3 billion, accounted for 36 per cent of government operating expenditure. In the current financial year that will drop to 31 per cent, or $65.3 billion, according to a paper released by the Civil Service Bureau this week.
That significant, five-point reduction was achieved by slashing the civil service establishment from 198,000 in early 2000 to about 164,400 by August last year - a 17 per cent drop. The figure has since fallen further, to around 157,800.
Other savings have resulted from cutting back fringe benefits. For example, a just-concluded review of overseas and local education allowances and other perks will see those bills cut by $390 million over the next five years.
Despite the substantial cutbacks, a sense of outrage creeps in when the figures are compared with world averages. According to the World Bank, the average civil-service wage bill in high-income countries is about 15 per cent of total government spending - or just half our level.
Several reasons account for the anomaly. Hong Kong still has a colonial civil service in terms of its pay structure. Thanks to provisions in the Sino-British Joint Declaration and the Basic Law, the pay and conditions of service for civil servants cannot be lower than their prevailing levels when Hong Kong returned to Chinese sovereignty in 1997.
Civil servants are therefore still drawing housing and education allowances that were originally conceived for the benefit of expatriates, but were later extended to cover most local officers.
Currently, about 120,000 civil servants are eligible for the overseas education allowance, (OEA) and 150,000 for local education allowances (LEA).
In 2005-2006, the OEA is expected to cost the government $642.6 million, and the LEA $309.8 million. While the latest review will cap the allowances at 1997 levels, total outlays for these items are expected to rise before they drop - because more officers will become eligible to draw them. The allowances will not be phased out until 2040.
The single most important factor that accounts for the government's high wage bill is its failure to adjust civil service pay in line with the job market. The government was supposed to have conducted periodic pay-level surveys to compare the salaries of civil servants with their private-sector counterparts, and make appropriate adjustments.
But no such surveys have been done since 1986, due to differences between the government and unions over their methodology and application. However, throughout the 1980s and 1990s, civil servants were granted pay raises at rates comparable to private-sector employees - with little reference to the growing gaps between base salaries.
It was not until the harsh economic times after 1997 that the gaps became an issue. Pay cuts were ordered in 2002, 2004 and last year for incumbent civil servants, and salaries for new recruits were slashed by as much as 30 per cent. Still, most civil servants are widely believed to be overpaid.
At long last, the government appointed a consultant last year to conduct a pay-level survey. When its findings are released later this year, they are expected to stir up controversy - as they are likely to show that our civil servants are still overpaid.
If civil servants were prepared to be objective, they might appreciate a solution that would hurt their personal interests. Imagine if the government had a wage bill that was about 15 per cent of operating expenditure in 2005-2006, or $31.59 billion. This would mean savings of $33.79 billion, which could be used to improve public services - benefiting civil servants, as well. It could mean smaller classes and better care at public hospitals, without raising new taxes.
C.K. Lau is the Post's executive editor, policy
