HK$1b insolvency fund spurs call to cut levy

With nearly HK$1 billion in the government's insolvency fund, the Labour Department will study a proposal to reduce the levy that contributes the most money into it.

Board members of the Protection of Wages on Insolvency Fund advised the department to cut the levy from HK$600 to HK$450 and proposed that an adjustment mechanism be established to accommodate different economic situations.

The major contributor to the fund, which helps settle workers' unpaid wages, is the Business Registration Certificate levy.

The levy was increased from HK$250 to HK$600 during the economic downturn in 2002, but the surplus snowballed to HK$966 million at the end of last month because applications to withdraw money from the fund were 19 per cent lower in the first eight months of this year compared with the same period last year (671 to 831), according to board figures.

The 671 applications this year covered 3,305 workers, compared with 5,231 workers from the 831 applications last year - a fall of 37 per cent.

Legislator Lee Cheuk-yan, of the Confederation of Trade Unions, said that the improving economy accounted for the fall in fund applications.

But he said the government should first review the coverage of the fund before studying the levy cut.

'Holiday pay and annual leave pay are now excluded from the protection, and they can be a substantial amount to workers,' Mr Lee said.

'The first step should be to review the scheme.'

The economy, he said, 'has now improved, and the levy can be reduced. But you never know when the recession will come again'.

Democratic lawmaker Andrew Cheng Kar-foo also welcomed the suggestion, saying the mechanism could be similar to the one that determines bus fares.

The proposals will be discussed later by the Labour Advisory Board and legislators.

The insolvency fund, established in 1985, suffered from cash-flow problems after the Asian financial crisis in 1997. In 2002, payouts exceeded income by HK$1.94 billion, depleting the reserve by 75 per cent.

Less of a drain

Applications received by the Protection of Wages on Insolvency Fund in the first eight months of this year 671