Lifeline for needy or unaffordable luxury?

ONE OF THE DIRTY little secrets of Hong Kong's freewheeling capitalist system is that it has spawned one of Asia's most expensive social security systems, including public housing for up to half the population - the current figure is more than 52 per cent - and support payments for the poor that began in the 1970s.

Payments are handed out under the Comprehensive Social Security Assistance (CSSA) programme and as the number of unemployed increases, so has the number of CSSA payouts, exacerbating Hong Kong's growing fiscal deficit.

Critics say it fails to target the neediest and is creating a culture of dependency that goes against the character of Hong Kong.

Those favouring CSSA argue that providing a basic social safety net is necessary, especially as the economy restructures.

Critics against are also focusing on the sharp increase in the number of people seeking CSSA assistance. In less than a decade, the number of people receiving unemployment benefits has grown from 3,280 in 1993 to 39,375 last month. The department's total claims - dominated by the elderly, who claim up to half the CSSA's budget - have tripled in the past 10 years, to 262,987 recipients.

But the most heated part of the debate involves benefits for the unemployed, and whether the programme is creating disincentives for workers to return to the job market because they get more under CSSA than some low-paid workers.

Those in favour of continuing the current level of CSSA payments say the debate is mean spirited. Data from City University researchers shows the number of Hong Kong families living in poverty has risen to 449,000, or 28 per cent of the total number of families - almost double the 15.5 per cent figure for 1995.

According to Dr Fernando Cheung Chiu-hung, a lecturer in applied social studies at the Polytechnic University, it would be heartless to adjust the social security system to take in economic performance.

'Our GDP [gross domestic product] per capita is still among the highest in the world,' Mr Cheung said. 'The government should provide the basic needs for the underprivileged. We agree that wages in Hong Kong are going down, but don't forget that the poverty gap is very wide. If it has a financial problem, the government should be introducing progressive taxes.'

Social security is just one of many difficult questions raised by Hong Kong's economic woes. The need to cut costs has forced a re-examination of basic institutions and values, exposing inherent contradictions in a policy legacy designed to spur growth while keeping a lid on political and social tensions.

The latter threatened to spill out of control during an era starting in the 1950s, when Hong Kong began taking in hundreds of thousands of refugees from the mainland and Southeast Asia. Perhaps no issue illustrates the dilemma better than the debate over whether to cut payments under the social security programme.

At one time, Hong Kong's relatively generous social safety net put it ahead of the rest of Asia, and represented a political rebuttal to the socialist paradise across the border, where full employment was taken for granted. Now it is seen as a luxury that Hong Kong may no longer be able to afford as the economy slumps.

The government proposes a cut of at least 10 per cent in CSSA expenditure for the next financial year. It also wants to introduce a 'carrot and stick' approach forcing beneficiaries to do more community service and allowing them to keep more of the income they earn through jobs. The last time cuts were made to the CSSA programme was in 1999. New cuts would bring payments below that year's level.

While Chief Executive Tung Chee-hwa vows to maintain a minimum social safety net for the nearly seven million citizens, others in his administration want cuts. They say taxpayers will foot a $16 billion social security bill this year, an 11 per cent increase over last year, and the budget is expected to rise to $18 billion next year if nothing is done, they say. In the 1991-1992 financial year, social security expenditure accounted for 1.6 per cent of government spending. By 2001-2002 that had risen to 7.3 per cent. The critics' case was bolstered recently with the news that Hong Kong's budget deficit reached a record $56 billion in the first five months of this financial year.

To gain public approval for CSSA cuts, welfare officials have complained about welfare families who are better off than families with wage earners. In July, the Social Welfare Department released data showing that the average monthly CSSA payment for a family of four, including rent allowance, was $10,010.

The welfare payment for a family of four is 1.4 times the average wage of a non-skilled worker, welfare officials said, with claimants being overpaid by about 12.4 per cent, mainly because of consumer price deflation that has not been factored into payments.

Economists say the open-ended welfare system may spiral out of control if the payment level is not adjusted. Professor Ho Lok-sang, director of the Centre for Public Policy Studies at Lingnan University, says welfare payments should be tailored both to deflation and per capita GDP. Census and Statistics Department figures show that the per capita GDP, at current market prices, dropped 1.6 per last year - to $190,188 last year from $193,299 in 2000. 'We have to talk about sustainable welfare. If we spend too much today, we will not be able to take care of the needy tomorrow,' Professor Ho said.

Francis Lui Ting-ming, director of the Centre for Economic Development at the Hong Kong University of Science and Technology, also supports cuts. 'If CSSA is too generous, it attracts more and more applicants and will worsen the jobless rate. It is demoralising to those who work hard to earn a living.' But like many people, Professor Lui is concerned about having to choose between helping the poor and helping Hong Kong get its finances in order.

The CSSA was born out of the Public Assistance Scheme, established in 1971; payments then covered only food. In 1993, the CSSA scheme was introduced, offering allowances to cover the general cost of living.

Now, experts are arguing in favour of tying CSSA payments to the cost of living index.

Nelson Chow Wing-sun, chairman of the department of social work and social administration at the University of Hong Kong, insists on fairness.

'When the economy turns bad, everyone suffers. Welfare recipients should not receive special privileges,' he said. 'Hong Kong is not a welfare state, but when you look at the payment level, there is no incentive for CSSA recipients to get out of the safety net. They have a relatively comfortable life.'

Professor Chow argues that the government should explore the idea of setting up an emergency fund for the jobless, with a payment cut-off of six months, after which the unemployed would be forced to actively seek work.

Disturbingly, there is evidence of growing public resentment against people receiving benefits. Liberal Party chairman and executive councillor James Tien Pei-chun, who is sympathetic to payments to support the elderly and the disabled, believes the programme for the unemployed 'risks breeding lazy people', and wants to reduce payments in proportion to any decrease in market wages. 'Many Hong Kong families are living on $7,000 a month. Why can't a CSSA family survive on the same?' he said.

In the global context, Hong Kong falls somewhere in the middle in terms of social security expenditure. Like Japan, Australia and the United States, Hong Kong has a full complement of job training, health and housing efforts and support for the unemployed, elderly or disabled. However, spending on such programmes as a percentage of GDP, at about eight per cent, trails the 21.4 per cent the World Bank estimates developed regions spent between 1993 and 1998. If public housing is taken out, Hong Kong's social budget is a less generous 4.7 per cent.

In the short term, Hong Kong may have little choice but to slash welfare payments, but even harsh cuts will not solve the problem if the unemployment rate continues to grow at the current pace.

Like many other sectors, Hong Kong's social security scheme is crying out for creative solutions.

Ella Lee is a writer for the Post's news desk. Anh-Thu Phan is associate editor of the Post's opinion pages

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