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Following is a question by the Hon Paul Chan Mo-po and a written reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (February 8):
Question:
The Protection of Wages on Insolvency Fund (PWIF) is mainly financed by an annual levy on each Business Registration Certificate (BRC). It has been reported that as PWIF has persistently recorded surpluses in recent years, the Protection of Wages on Insolvency Fund Board (PWIF Board) will lower the levy rate of BRC. Regarding the income of PWIF and the use of its reserve, will the Government inform this Council:
(a) whether any review on the adjustment mechanism of the levy rate has been conducted since the establishment of PWIF; if so, when such review was conducted and the details of the review, and whether any upper/lower limit in respect of the levy rate was set; if no review was conducted, whether there is any plan or requirement regarding when such a review will be conducted; and
(b) given that according to the requirements of the Protection of Wages on Insolvency Ordinance (Cap. 380), the reserve of PWIF may only be deposited on fixed term in Hong Kong dollars, and with the prior approval of the Financial Secretary, its moneys can be invested in such other investments as the PWIF Board thinks fit, whether any application for investing the moneys of PWIF in other investments has been submitted to the Financial Secretary since the establishment of PWIF and obtained approval; if so, when such investments were made and the details of their returns; if not, of the reasons for that; whether it will, in response to the economic situation in society, review the existing requirement that moneys of PWIF may normally be deposited on fixed term in Hong Kong dollars only, so as to increase flexibility of investments under the fund and yield higher returns?
Reply:
President,
My reply to the Hon Paul Chan Mo-po's question is as follows:
(a) According to section 4 of the Protection of Wages on Insolvency Ordinance (Cap. 380) (PWIO), the functions of the PWIF Board include making recommendations to the Chief Executive on the rate of levy on BRC.
The PWIF Board has all along kept the levy rate under constant review, and made proposals or decisions to adjust the levy rate upwards or downwards or to keep it unchanged having regard to the financial position of the PWIF and the payout as required for claims. Since the establishment of the PWIF, the rate of levy on BRC has been adjusted upwards twice and downwards once, including:
(i) raising the levy rate from the original $100 to $250 in July 1991 to meet the additional payout for claims arising from the increase of payment ceiling on the ex gratia payment for severance payment;
(ii) raising the levy rate to $600 in May 2002 to cope with the upsurge in business closures and redundancies as a result of the Asian financial crisis; and
(iii) reducing the levy rate to $450 in March 2008 when the accumulated surplus of the PWIF had steadily maintained at a healthy level.
In April 2008, the PWIF Board established a mechanism for triggering the reviews of the levy rate so as to strengthen its discharge of the statutory function of making recommendations on the rate of levy. In accordance with the mechanism, where the accumulated surplus falls below $800 million by 20% or more for four consecutive quarters or where it exceeds $1,200 million by 20% or more for four consecutive quarters, the PWIF Board would consider whether to review the rate of levy to recommend a levy increase or reduction. When making use of the mechanism, the PWIF Board would at the same time consider all the relevant factors that would impinge on the PWIF and, in accordance with the mechanism, make adjustment proposal on the levy rate at an appropriate time. To maintain flexibility to meet economic changes and the needs of the PWIF, no upper or lower limit in respect of the levy rate is set.
(b) According to section 4 of the PWIO, the functions of the PWIF Board include administering the PWIF. Section 10 of the Ordinance stipulates that all moneys of the PWIF which are not immediately required by the Board may be deposited on fixed term or call deposit or in a savings account in any bank within the meaning of section 2 of the Banking Ordinance (Cap. 155). With the prior approval of the Financial Secretary, the moneys may also be invested in such other investments as the PWIF Board thinks fit.
The PWIF is set up to act as a safety net for employees affected by the insolvency of their employers upon business cessation by providing timely financial relief to them in the form of ex gratia payment to cover the outstanding wages and other specified entitlements. The PWIF Board has all along adopted a prudent approach in managing the PWIF to ensure its sustainability and to maintain sufficient cash flow to cope with any economic downturn and sudden outbreak of large insolvency cases.
In the past, with the prior approval of the Financial Secretary, the PWIF Board had made other investments apart from fixed-term deposits, including the purchase of a commercial property in 1990 mainly for accommodating the secretariat of the PWIF Board and the office for processing applications for PWIF, renting out part of the property which yielded rental income of about $6 million during the period of 1990-91 to 2000-01, and the appointment of two fund managers during the period of 1990-91 to 2001-02 to make investment for the PWIF resulting in a total gain of about $39 million.
The PWIF Board will continue to closely monitor the financial position of the PWIF to ensure its financial stability and consider suitable investment strategies in the light of the socio-economic conditions and other relevant factors impinging on the PWIF.
Ends/Wednesday, February 8, 2012
Issued at HKT 14:20
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