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Following is a question by the Hon James Tien and an oral reply by the Secretary for Economic Development and Labour, Mr Stephen Ip, in the Legislative Council today (March 7):
Question
In May 2002, the Government raised the Business Registration Certificate (BRC) levy rate from $250 per annum to $600 per annum, in order to address the financial difficulties of the Protection of Wages on Insolvency Fund (the Fund). The then Commissioner for Labour (C for L) advised at that time that the Labour Advisory Board (LAB) would review in one year's time whether the financial position of the Fund permitted the lowering of the BRC levy rate. C for L further advised that the financial position of the Fund would be considered healthy if its reserves reached a level of $200 million, less all expenses to be paid. It is learnt that the accumulated surplus and reserves of the Fund exceeded $400 million in total by the end of March last year. In this connection, will the Government inform this Council:
(a) whether LAB conducted the review in 2003 as scheduled; if it did, of the outcome, and why the BRC levy rate has so far not been lowered; if it did not, the reasons for that; and
(b) of the projected financial position of the Fund for the next few years, and whether it will consider restoring the BRC levy rate to the level of $250 per annum; if not, of the reasons for that?
Reply
Madam President,
Under the Protection of Wages on Insolvency Fund (the Fund) set up in 1985, employees may apply for ex-gratia payment if they are owed wages, wages in lieu of notice and severance payment by their insolvent employers. The maximum payment that an employee can receive from the Fund is $278,500, comprising $36,000 for wages, $22,500 for wages in lieu of notice, and severance payment up to $50,000 plus 50% of the remainder of the entitlement. The Labour Department (LD) is responsible for processing the applications and the operation of the Fund.
The Fund is mainly financed by an annual levy of $600 on each business registration certificate. Other sources of income include money recovered from the remaining assets of insolvent employers through subrogation as well as bank deposit returns. In its nearly 22 years of operation, the levy rate was raised only in 1991 and 2002.
The following is my reply to Mr Tien's question:
(a) The Protection of Wages on Insolvency Fund Board (Fund Board), established under the Protection of Wages on Insolvency Ordinance, has the statutory functions of administering the Fund and making recommendations to the Chief Executive with respect to the rate of levy.
In 2002, after the Fund Board considered that the levy had to be increased to $600, the Labour Advisory Board (LAB) was consulted. The proposed increase was endorsed by the LAB and it was agreed that a review of the new levy rate be conducted in the following year. The LD, together with the Fund Board, have been closely monitoring the Fund's financial position and the levy rate. The Fund Board reviewed the levy rate in February 2003 and February 2004 and considered that it should remain unchanged. The LD and the Fund Board have continued to monitor the financial position of the Fund and the levy rate thereafter.
(b) The financial position of the Fund is subject to the amount of levy income and ex-gratia payment. For the next few years, the financial position of the Fund would continue to be linked to the state of Hong Kong's economy as well as the number of major insolvency cases. Indeed, notwithstanding a record reserve of over $930 million in October 1997, the upsurge in claims for ex-gratia payment after the Asian financial crisis drove the Fund into continued depletion and resulted in the levy rise in 2002. An accumulated deficit of $18.4 million was registered in March 2004. Experience suggests that the Fund has to shoulder hefty sums of ex-gratia payment in large insolvency cases. It is therefore necessary for the Fund to have sufficient reserve and cash flow to cope with any sudden outbreak of major insolvency cases as well as any economic downtown.
By providing a safety net for employees affected by business closures, the Fund plays an important role in maintaining harmonious labour relations and social stability. The Fund had annual surpluses during the first 12 years of operation since 1985, whereas it only regained the first surplus in 2004-05 following seven years of deficits after the Asian financial crisis. Therefore, it is important that the Fund should build up sufficient reserve to prepare for the rainy days. The LD together with the Fund Board would continue to monitor the financial position of the Fund closely and would review the level of the levy rate at an appropriate time.
Ends/Wednesday, March 7, 2007
Issued at HKT 12:07
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