Time to Support the Working Poor


If boldly tackling air pollution should be the number one priority in the upcoming budget, reaching out to support the working poor among us comes a very close second.

The growing gap between the haves and the have-nots is seriously undermining social harmony in our city. There is an increasing sense of cynicism, a feeling that the dice are loaded in favour of a handful of property related billionaires and that the little guy can no longer break out of the cycle of poverty.

Many of our young people no longer look on Hong Kong as the land of opportunity as it was seen by their parents and grandparents.

This malaise manifests itself in a number of disparate ways: violent protests against fairly routine infrastructure projects; growing support at the polls for candidates of a manifest anarchic persuasion; media turning away from issues of substance and focusing on gossip items involving self professed celebrities, to name but a few.

One of the remarkable features of our community at the moment is the very large number of people, tens possibly hundreds of thousands, who choose to carry on working when they would probably be better off from a narrow financial perspective sitting down and relying on social welfare. They prefer to maintain their dignity and self respect by working.

The new legislation on minimum wage will help some of these people to a modest extent. But in truth the effect will not be great and will be partly offset by some people losing their job altogether.

Governments in some other parts of the world have found ways to give direct assistance to the working poor by introducing a variant whereby the Inland Revenue Department does not only take money from people who earn more than a certain limit, it also pays out money to people who earn less than a certain figure. Hence the name "negative income tax".

Broadly the shape is as follows: you choose a reasonable wage as the starting point - a given percentage of the median wage is one option - and then those whose actual pay falls short of this figure receive a refund cheque from the Inland Revenue Department to cover part of the difference.

By way of illustration, if the median pay in Hong Kong is $16,000 and we apply a 50% figure making $8,000, then someone working who earned only $6,000 per month would be given a portion of the $2,000 shortfall, say 50% which would mean an extra $1,000 from the Government.

The US tries to achieve something similar with an "earned income tax credit". What this means is you add up all the allowances you are entitled to (personal, spouse, child, elderly, sibling etc) and then compare the figure with your actual salary. If the total of the allowances exceeds your actual earnings, then you get a refund for part of the difference.

What these and similar schemes seek to do is reward work. If the economic value of the work, as determined by supply and demand in the market, results in a wage from your employer that is too low, then society steps in to make up part of the difference. A beneficial side effect is that jobs (and activities) are retained in Hong Kong rather than lost permanently to another economy.

Hong Kong is not a welfare state, and is not in danger of becoming one in the near future. But populist policies are on the rise. There will always be pressure to increase welfare allowances, particularly when we move into the next phase of democratization. Unless something is done, the danger is that more and more people will be tempted to just shrug their shoulders, give up work, and rely on Government handouts.

Some may have an instinctive objection to paying out taxpayers' cash to able bodied working people. But we need to think through the options clearly. The last thing we want is a significant and growing number of disaffected people, with time on their hands because they have given up work, without a stake in the system.

Moreover the doctrinal objectors need to be realistic: is it better to shell out $10,000 per month on CSSA for a family that has given up work (probably forever) or $1 or $2,000 per month to keep the main breadwinner active in the labour market?

It should be a no brainer. Let's nip this problem in the bud, in the coming budget.


 
Mike Rowse
email: mike@rowse.com.hk