With its huge reserves, Hong Kong should consider a cash ‘inheritance’ for its young people
Stephen Vines says giving one-off budget ‘sweeteners’ is not an effective way of sharing the wealth. With no public spending reform or universal pension scheme, the next best way may be an idea first proposed by a British think tank: a publicly funded ‘inheritance’ for, say, all 25-year-olds
There might just be a way of giving Hong Kong’s least wealthy people a real opportunity to share the considerable wealth that is weighing down the government’s coffers. It may indeed be the only way, given official aversion to fundamental poverty alleviation.
But before we come to this idea, let’s consider the debacle that rejoiced in the name of a budget.
Having insisted that there was no question of including so-called handouts in the budget, the financial secretary was forced to eat his words and dish out a maximum HK$4,000 one-off payment each to the poorest members of the community. In fact, the budget already contained rather bigger handouts to property owners and taxpayers, by way of rates rebates and tax breaks but, as ever, when the higher-paid receive government largesse, it is not described as a handout.
This practice of dishing out one-off “sweeteners” is both irresponsible – because it does not form part of a coherent policy – and ineffective, in either tackling poverty or achieving any specific goals aside from political expediency.
Given that some 20 per cent of Hong Kong’s population live below the poverty line and that there is a daunting gap between the rich and the poor, bumbling on and applying the odd Elastoplast here and there is simply not going to change anything.
Fundamental public spending reform would see the provision of a far better infrastructure for education, housing and health care squarely targeted at the needs of the poorer members of the community. This would be accompanied by the no-brainer of a universal pension plan, which would be of most benefit to the poor but, crucially, would include even the rich so that all members of the community have a stake in the scheme, both as recipients and contributors.
However, resistance to fundamental reform is considerable, and comes mainly from those best placed to influence policy. Officials are, for example, easily persuaded not to rock the property-market boat because practically every business grandee in Hong Kong has a vested interest in maintaining prevailing high price levels.
So boat-rocking is an unlikely prospect. But what about giving residents an “inheritance”? It’s an idea that comes from Britain’s Institute for Public Policy Research and proposes giving all citizens a publicly funded “inheritance” at the age of 25, amounting to the equivalent of roughly HK$100,000 (US$12,750). The idea was not designed for Hong Kong but happens to fit very well.
A sum of this order or similar would make very little difference to the better off, but in accordance with the principles of universality, it is vital that the whole community not only benefits, but also contributes, so as to give the scheme acceptability.
Incidentally, those who say that the poor do not contribute, because they do not have to pay income tax, seem to forget that the burden of indirect taxation is much higher for the poor because these taxes consume a larger percentage of their income.
So, what could this public inheritance scheme achieve? Crucially it would provide a significant leg-up for young people at the start of their working lives. The biggest beneficiaries are unlikely to have parents who are able to hand over six-digit sums. Cash of this kind can indeed be quickly frittered away, for, as students of taxation know, the poor are far more likely to spend extra money than save it. Such spending would give an immediate boost to consumption and thus economic growth.
However, this kind of money can also provide the starting point for a savings plan and/or a meaningful investment scheme.
The other benefits include the morale boost given to younger people and the prospect that a meaningful sum of money would focus minds on putting it to good use.
Affordability is hardly an issue for a government swimming in cash and prone to frittering it away on grandiose projects combined with meaningless one-off handouts. Moreover, because payment is triggered at a particular age level, it means that disbursement of the funds would be gradual, although there would probably be a need for a bigger upfront payout when the scheme starts.
A public inheritance scheme is not the best way of alleviating the appalling shame of poverty in Hong Kong but it has the merit of being politically viable. Unlike funding for various other poverty alleviation measures, it would be less vulnerable to being turned on and off at will because there is little doubt that this scheme would be immensely popular.
There are undoubtedly other problems, and there is obviously scope for adjusting the sum involved and changing the qualifying age for recipients, but the whispers of cloud that inevitably gather around a proposal of this kind should not be allowed to obscure the big picture.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster