Subsidise That

I am getting rather concerned that the government is 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 $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 the qualifying number of 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 staff off.

The MPF rendered the main purpose of the LSP 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 age 65. In exchange, employers secured the right to offset sums due under the LSP 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". Use of that phrase shows how easily emotion can creep into public consciousness and distort subsequent discourse.

The real policy lacuna was the failure in 2000 to completely scrap the LSP from a future date, 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 as is the way of such things the idea found its way into the manifestos of persons running for political office, including eventually the post of chief executive.

CY Leung proposed during his term to phase out the offset over 10 years, with a subsidy from public coffers of $7.9 billion to help SMEs cope with what would indeed become double payment. Opposition from employers stalled the plan, but 18 months ago current incumbent Carrie Lam Cheng Yuet Ngoh revived the idea, this time to be spread over 12 years and with the subsidy increased to $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 they 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, 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.

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 LSP 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.

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 last few months, and some of them 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. Now 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.