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Following is a question by the Hon Chan Yuen-han and a reply by the Secretary for Financial Services and the Treasury, Professor K C Chan, in the Legislative Council today (July 4):
Question:
Regarding the thematic report on the household income distribution published by the Census and Statistics Department last month, will the Government inform this Council:
(a) of the reasons why the authorities have taken into account only three social benefits, namely education, housing and medical benefits, but not other community, recreational and cultural facilities and services which are used by both the rich and the poor, when computing the post-tax post-social transfer Gini Coefficient (GC);
(b) whether it knows the changes in the GCs of France, Germany, Japan, South Korea and Taiwan over the past decade, and of the reasons why the aforesaid report did not compare the GCs of Hong Kong with those of these developed economies; and
(c) as the continuous rise of GCs since 1971 indicates a deteriorating trend of disparity in income and the inadequacies of existing measures in reversing such a trend, whether it has any plans for taking further measures to curb the trend; if it has, of the details of the plan; if not, the reasons for that?
Reply:
Madam President,
The Gini coefficient (GC) is a summary measure to depict the income disparity of an economy. In general, household income is used as the unit of study. The GC takes the value between 0 and 1. The larger the value, the greater is income disparity. Over the years, the GC has been commonly used in the international community, including Hong Kong, in describing the degree of dispersion in household income. The GC has the advantage of having a single statistic which is more easily understood by the public. However, it should be noted that GC is a relative measure reflecting the magnitude of household income disparity. It cannot fully reflect the actual economic well-being of households or individuals. Thus, using a single figure to simplify a complex social phenomenon may not be able to accurately reflect the actual circumstances and changes. Moreover, the levels and changes of the GC are subject to changes in the structure of the economy, demographics and families. As such, apart from making reference to the GC based on original household income, income analysis should be conducted from different angles and perspectives.
Based on original household income, the GCs of Hong Kong were 0.518, 0.525 and 0.533 for 1996, 2001 and 2006 respectively, similar to those of the UK and Canada. Although there has been an apparent increase in the GC over the past decade, we must analyse the reasons for the rise in the GC objectively and made reference to the factors affecting the distribution of real wealth when examining the actual situation of income disparity. As I have just pointed out, the GC is easily affected by the changes in the structure of the economy, demographics and families. In terms of the economic structure, there is less income disparity amongst employed persons in economies with greater preponderance of agricultural and manufacturing activities, whereas there is a larger income disparity amongst employed persons in economies which place more emphasis on skills and are knowledge-based, such as Hong Kong.
Over the past decade, Hong Kong has undergone continuous economic restructuring, spear-heading towards the path of higher academic qualifications, high-tech and high value-added in economic development. Such mode of development, which is in line with the globalisation trend, will lead to a rise in the GC. As indicated by the statistics, there would be great disparities among the GCs if analysed by relevant industry, occupation and educational attainment. For example, if analysed by industry, the GC for the financing, insurance, real estate and business services was 0.544 in 2006; and that for the construction industry was 0.362, indicating a relatively smaller income disparity. This is a common phenomenon in the development towards a knowledge-based economy. If analysed by occupation, the GC for managers and administrators was 0.528 and those for clerks and elementary occupations were 0.272 and 0.283 respectively. If analysed by educational attainment, employed persons with higher education level earned more than those with lower education level, but the income disparity was also higher amongst those with higher education attainment. For example, the GC for the employed persons with degree-level qualification was 0.528 whereas the GCs for those with lower secondary or primary-level qualifications were ranged from 0.357 to 0.379.
Apart from economic restructuring, the changes in population and family structure also led to rise in GC based on household income. During the past decade, the continuous ageing population and changes in household size towards small families have led to a significant increase in the number of older-person households and elderly singleton households, thus leading to the increase in the number of low-income households. For instance, the number of families comprising just one or two members has increased by 42.5% over the past decade. Among these, there is an increase of over 50% in the number of elderly households with just one or two members. As most older persons were retirees or not engaged in economic activities, the household income of older-person households were correspondingly lower. According to the report published by the Census and Statistics Department (C&SD) on household income distribution, the GC computed on the basis of per capita household income has been very stable and stayed at about the same level in the past decade if we take into account the decrease in household size in the local population during the same period.
As illustrated by the above examples and figures, the study of income distribution is a highly complex subject requiring careful interpretations. During the past decade, Hong Kong has been experiencing economic restructuring as well as changes in social and demographics. It may not be possible for us to fully understand the actual situation by looking at GC compiled based on household income data alone.
In regard to the questions raised by Hon Chan, here below is my reply:
(a) It is inevitable that income disparity would exist, no matter how robust the economic growth and development of an economy is. Government intervention through taxation and social benefits helps bring about income redistribution. Generally, households at the upper segment of the income distribution pay more in taxes than they receive in benefits, and the reverse happens for households at the lower segment of income distribution. Taxes and benefits therefore tend to have the effect of narrowing household income disparity. In view of the fact that the GCs published in the past were compiled on the basis of original household income and did not reflect the impact of government polices and measures as mentioned above in helping the low income households, the C&SD has conducted in-depth analysis on this topic in the thematic report on household income distribution in Hong Kong published in June this year. The report includes an examination of the redistributive effect of taxation and direct social benefits on household income and the compilation of post-tax post-social transfer GCs.
Taking into account the effects of both taxation and social benefits on household income, the GC for 2006 dropped from the original 0.533 to 0.475, indicating a reduction in the spread of income disparity. This is due to the Government's continuous increased spending on education, housing and medical benefits during the past decade. In this study, the benefits in kind allocated to households constituted some 36% of the public expenditure in 2006.
Other than public education, medical and housing services, members of the public may also have access to various types of other subsidised or free services provided by other public and private organisations, such as library services provided by the Government, and social services by charitable organisations. As the C&SD does not have sufficient data to clearly identify the group of persons receiving such services, those services cannot be covered in the study. We understand that overseas studies of a similar nature are also faced with the same limitation.
(b) The comparison of income disparity on an international scale among different economies may be subject to considerable limitations owing to differences in income definitions and compilation methods. Despite the fact that some economies are in similar situation as that of Hong Kong, those economies which have not published relevant study results or have not conducted studies with regard to the impact of government measures on income distribution were not included in the thematic report by C&SD for comparison. Nevertheless, the C&SD will continue to keep abreast of the international development and latest trend in major economies.
(c) As I mentioned before, the economy of Hong Kong has been undergoing continuous restructuring and upgrading in the past decade. A working population with high educational qualifications and high skills, and knowledge-based industries will have higher level of income disparity. However, the per capita post-tax post-social transfer household income GC in 2006 remained at the same level as that of a decade ago. Notwithstanding this, the HKSAR Government is very concerned about the well-being of low income earners and the disadvantaged. Our approach is to formulate poverty alleviation and prevention measures addressing their specific needs.
To this end, the HKSAR Government has been committing itself to improving people's livelihood and helping the disadvantaged. In Hong Kong, the tax rate is relatively low and low-income earners often do not need to pay tax. Our public housing policy provides assistance to low-income families which cannot afford private housing. At the same time, over 50% of the public expenditure is spent on education, welfare and public medical services to improve the living conditions of the poor. In the past decade, the expenditure on these public services has increased by about 50% to $120 billion.
The HKSAR Government attaches great importance to poverty alleviation. In exploring how to pursue the work more actively and effectively, the Commission on Poverty has, for the past two and half years, actively promoted the policy direction of "From Welfare to Self-reliance", made various recommendations on stepping up prevention and alleviation of poverty, and considered new strategies and directions for poverty alleviation.
The term of office of the Commission on Poverty ended last month. This, however, does not represent an end to poverty alleviation work, but signifies the beginning of the next stage of work. Alleviating poverty through job creation is one of the important tasks of the new Administration. We will strive to stimulate economic growth and create employment opportunities. We will strengthen and integrate training and employment assistance to enhance the abilities of the disadvantaged to adapt to economic restructuring and achieve self-reliance. The Administration will also try out new approaches, including the further development of social enterprises, to assist those who are difficult-to-employ to integrate into the job market. The Labour and Welfare Bureau will oversee and monitor the overall progress of poverty alleviation, and encourage greater coordination of efforts across the Government to tackle poverty.
Ends/Wednesday, July 4, 2007
Issued at HKT 16:03
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