A series of pre-budget announcements on expenditure cuts and new taxes over the past two weeks has lent credence to the Hong Kong government's determination to plug a ballooning budget deficit. Civil service salaries will be cut by 6 per cent and social security payments by 11.1 per cent, while an $18 land departure tax will be levied.
A report released by the International Monetary Fund yesterday has even commended the government for having the courage to cut welfare payments. But it would be unfortunate if the IMF's endorsement of the reduction were to be used by officials to buttress its case for doing so.
Taking tough measures to address the deficit is one thing; ensuring they are fair and equitable is another. Reducing welfare to the poorest groups of the community is always going to be politically unpopular. Done objectively and with precision, however, few would argue against making the adjustment, after five years of deflation, to return the buying power of the benefits to their intended level in 1997.
What has undermined the case of treasury and welfare officials is the double standards that the administration has adopted in handling cuts to civil service salaries. In dealing with the latter, deflation has not been taken into account, on the grounds the Basic Law precludes that. But Maria Tam Wai-chu, a barrister and member of the Basic Law Committee, which advises the central government on the interpretation of Hong Kong's constitution, has since disputed that view.
Even more alarming is the fact that the government's policy of not considering deflation in matters pertaining to civil service pay has been deeply entrenched. In 2000, a study by the Director of Audit revealed that amendments to the Pension (Increase) Ordinance and the Widows and Orphans Pension (Increase) Ordinance in 1993 made pension increases a statutory entitlement. The change put an end to the long-standing practice of using administrative arrangements to award increases on a discretionary basis, subject to the approval of the Legislative Council.
Perhaps the long period of inflation since the mid-1980s had conditioned the minds of legislators at the time that prices were going to rise forever. The two amended ordinances made no provisions on how pension payments might be reduced in line with deflation. That is to say, despite the scheduled cuts to the salaries of civil servants, retired government employees will merely see their monthly stipends frozen. Unless the law is changed, it is clear what this will mean to the government's pension liability over the long term - it will become even more of a burden.