The pay adjustment row between the Government and the civil service unions has turned into an annual ritual. Despite long debates on how public servants' salaries should be determined we still do not have a consensus. On Tuesday Exco endorsed a pay rise proposal under which senior officials will get a 6.9 per cent rise while intermediate and junior officials will get 6.81 per cent. Civil service unions will no doubt respond before Exco makes its final decision on June 3. But we have already had some unfavourable reactions. The increases proposed by a tripartite committee, comprising the administration, the unions and independents is based on pay adjustment in private firms over the past 12 months. Pay increases for senior, intermediate and junior employees in the private sector were 8.14, 8.02 and 7.53 per cent respectively. After deducting the increment by seniority in the civil service, the net increases for the three bands should be 6.9, 6.81 and 6.38 per cent. However, in accordance with convention, the increase for the intermediate and junior bands is the same. The proposed increases exceed inflation, which was merely six per cent for the 12 months ended March. As such, civil service unions cannot really complain about falling living standards. However, soon after the proposal was announced, three unions representing senior, junior, and police officers demanded a uniform rate of not less than 6.9 per cent for all staff, while the union of other disciplinary services demanded a uniform rate of 8.14 per cent. For now, the administration is unsympathetic; public expenditure will increase by at least $50 million a month. In setting civil servants' pay increases, factors such as impact on inflation, retention of expertise in the administration and public expenditure priorities will be taken into account besides the morale of the service, which is important. However, I hope the two sides will take into account the wider community interest during their negotiation, as it will impact on the entire economy. Junior officers' representatives warn that the different increases are not only divisive but also continuously widen the gap between them and their senior counterparts. Is this criticism fair? In 1993, 1994 and 1995 the pay rise rate for the junior and intermediate bands were higher than the senior band, by 0.9, 0.42 and 0.16 per cent. I have long advocated that high inflation impacts more on low wage earners. Indeed, I have also consistently argued that the Government should take a lead in breaking the wage inflation upward spiral by having increases less than inflation. The administration has consistently kept civil servants' pay on a par with private sector pay. The Employers' Federation is unhappy because the administration's proposal is too generous. This concern must be shared by the whole community, as spiralling labour costs have been eroding Hong Kong's competitiveness for more than a decade. As Hong Kong's largest single employer, the Government has an undoubted leadership role not just as a good employer but also to prevent waste, to be efficient and cost-effective. Recently the Liberal Party issued its challenge to the Government in this respect. Perhaps the Government will rise to the challenge over the proposed pay increases. The administration must strictly control existing expenditure and find resources for meeting new social needs. Shouldn't the administration and our public servants uphold this prudent fiscal policy and find the right balance when deciding on their own pay increase?