Forget sensible policies. Rich Hong Kong has money to throw at its problems

Mike Rowse says from water bills and replacing old lifts to its latest attempt to scrap the MPF offset mechanism – by offering a whopping HK$29 billion in subsidies – the government is using money to get out of the need to make tough decisions

PUBLISHED : Sunday, 07 October, 2018, 2:33pm
UPDATED : Sunday, 07 October, 2018, 6:43pm

The Hong Kong government seems to be developing a tendency to throw taxpayers’ money at issues rather than make sensible policy choices.

The decision last week by the Executive Council to subsidise the end of the Mandatory Provident Fund offset arrangement, to the tune of HK$29 billion over 25 years, shows the tendency is now completely out of control. The implications for public finances, prudent management of which has long been a Hong Kong hallmark, are grave indeed.

To understand the problem we face now, we need to go back to the situation prevailing when the MPF was first introduced in December 2000. Employers at that time were already obliged to make long-service payments to employees who had been with the company for more than five years. The main objective was to provide a lump sum for retirement but the money also provided a useful cushion to cover periods of temporary unemployment. In certain circumstances, employers were also obliged to make severance payments when they laid off staff.

The MPF rendered the long-service payment system redundant, but it was kept in place because, for some employees, their entitlement under the old system would be far higher than anything they might expect from the MPF. Also it was payable immediately, whereas the MPF could only be drawn on at the age of 65.

What the Hong Kong government’s MPF offsetting plan is really about

In exchange, employers secured the right to offset sums due under the long service payment scheme and for severance against the contributions they had made to the employee’s MPF account, the justification being they should not have to pay twice for the same thing.

Over the years, that arrangement came to be falsely characterised in the media, and in the trade unions’ minds, as allowing the employers to “raid the employees MPF accounts”. The use of that phrase shows how easily emotion can creep into public consciousness and distort subsequent discourse.

Once the idea of taxpayer subsidy to avoid tough policy decisions takes hold, there seems to be no end

The real policy lacuna was the failure in 2000 to set a date for the scrapping of the long-service payment scheme, together with a freeze on accumulated entitlements, and establish a separate scheme to provide unemployment insurance. Those omissions have now come back to haunt us.

Over time, “scrapping the MPF offset” became a popular rallying cry, and inevitably the idea found its way into the manifestos of people running for political office, including eventually the post of chief executive.

Leung Chun-ying proposed, during his term, to phase out the offset over 10 years, with a subsidy from public coffers of HK$7.9 billion to help small and medium-sized enterprises cope with what would indeed become double payment. Opposition from employers stalled the plan but, earlier this year, incumbent Carrie Lam Cheng Yuet-ngor revived the idea, this time to be spread over 12 years and with the subsidy increased to HK$17.2 billion. Once again, the employers stood firm, hence the new proposal.

Am I the only one to see that the government is bidding against itself? The message seems to be: just say no and the government will offer more money.

Not only that, on the radio last week, a union spokesman was claiming that the employers were getting all the subsidy, and there should be a parallel subsidy scheme for employees. She didn’t seem able to grasp that abolition of the offset was in effect a subsidy scheme for her members because of the extra money they would be receiving from employers.

Without MPF fix, Hong Kong employees’ pension savings at risk

There is, finally, to be a new scheme whereby employers are to set aside a separate 1 per cent of wages to cover future severance and long-service payments. But each company is to establish its own separate account for the purpose. Would it not make more sense and be more secure to have a single centrally operated scheme, run by the government or an official agency? The administration could then get the ball rolling for that fund by depositing a (much smaller) finite sum.

And why does the long-service payment scheme have to run on in parallel with the MPF?

Once the idea of taxpayer subsidy to avoid tough policy decisions takes hold, there seems to be no end. Extend maternity leave from 10 weeks to a more reasonable 14 weeks? Let the government pay for the extra four weeks! Extend paternity leave from three to five days? Let the government pay again.

Why does the Hong Kong government have so much cash?

Lifts in older buildings need replacing or retrofitting with new safety devices. Is there a subsidy for that? Electricity bills are going up to help save the environment but we must soften the blow for consumers by ... you guessed it. Make buses safer for passengers by installing seat belts? Never mind that most passengers on green minibuses ignore the seat belts provided, and that many passengers on buses are standing anyway, if there is a subsidy to be provided, let’s get on with the job.

You may think some of these ideas are so foolish I must have invented them, but they have all been floated in the past few months, and some are being implemented.

Meanwhile, the Water Supplies Department won’t even recover from users the cost of the water we buy from the mainland. It is less trouble politically to keep covering part of the cost, and to hell with the idea of discouraging waste of water by pricing. We have been subsidising prices for so long, we’ve forgotten about it.

Part of the problem is Hong Kong’s accumulated surpluses. I share with Lam the belief that these should be gradually brought out of the cupboard and put to work to address our many social problems. I just wonder if these subsidies are the best way of using the money. Frankly, I doubt it.

Mike Rowse is the CEO of Treloar Enterprises. [email protected]