Relief efforts require a more targeted approach

PUBLISHED : Wednesday, 27 May, 2009, 12:00am
UPDATED : Wednesday, 27 May, 2009, 12:00am

The global financial crisis has taken a heavy toll on Hong Kong. Even so, public sentiment has improved, with upswings in the stock and property markets in the past two months, despite rising unemployment and worse-than-expected contraction of the economy in the first quarter. It therefore seems a little odd that the government chose to introduce HK$16.8 billion worth of relief measures at this time, especially as it is the fourth round of giveaways in 15 months. While the package will provide a degree of relief and comfort to low-income families, some of its more indiscriminate handouts - regardless of income levels and household earnings - are questionable. What is needed is a more targeted approach to encourage economic recovery without placing undue strains on the government's fiscal position.

The measures introduced essentially extend what has already been put in place. For example, they include raising existing caps on tax breaks and loan guarantees for small and medium-sized businesses. Given the poor are always hurt most during economic downturns, it is humane and right for the government to help them. Waiving two months' rent for public housing tenants will help ease their financial burden considerably, as will handing out an extra month of Comprehensive Social Security Assistance, old-age allowance and disability payments. But other measures - from extra salary tax breaks to an extended rates waiver - will put cash into people's pockets without necessarily encouraging them to spend. If they merely save, that will offer no stimulus to the economy.

Yet, such broad-based handouts to rich, middle-class and poor alike have been characteristic of previous relief measures; they may help the government avoid criticism that it favours some groups or strata in society over others. But passing on money to people who do not need it or who have reserves saved up for difficult times will not boost consumer spending. And it places additional pressure on the public coffers, which already face a deficit later this year. Such goodies and handouts may make people feel good, but their effectiveness as stimulative measures is questionable. On the other hand, the government is right to create more temporary jobs, such as those for cleaners and construction workers. They will help to tide people over difficulties during this downturn, but are too low-paying and will have only limited impact on the job market.

The latest measures appear aimed at placating demands for relief without committing to a real - and costly - stimulus package. From official estimates, the government is hoping that the shrinking of the economy will slow later this year and employment will start picking up. If that happens, then the several rounds of stimulus and relief measures introduced since last year may prove sufficient. But if the economy deteriorates significantly, the government must be ready to dip further into its reserves to launch more targeted stimulus measures to help businesses and create jobs. Meanwhile, it is important that work on major infrastructure projects, such as the extension of the MTR's Island line to Western, that will create thousands of real jobs should begin as soon as possible.