I am delighted to have what is for me a rather rare opportunity to address a room full of business people. And I hope my theme will be of interest to you. (This is not a fund-raising event, so you don't have to rush for your check books or the door.) How should we fund the programmes needed to help the needy, the less well-off, the vulnerable who exist in all societies, however wealthy? How to do this without killing off the economic goose which we need to continue laying golden eggs of prosperity? These are problems that we are far from being alone in facing in Hong Kong - they create a dilemma for any free market capitalist economy like ours.

I would not dare to claim we have a magic formula in Hong Kong; but I do think ours is an approach worth pausing to consider. The rising cost of social welfare is a black cloud hanging over many of the world's otherwise most successful economies.

Let me start with some statistics which are often the envy of many of my overseas counterparts who I meet from time to time. In the last four years, our recurrent expenditure on social welfare has increased by 65% in real terms; in 1992/93, it was $7 billion and in this financial year, we expect it to have grown to $15.3 billion. Social welfare spending was 7.7% of recurrent Government spending in 1992. Today, four years later it is 10.1%. This increase in share of Government expenditure also co-incided with a healthy increase in total Government recurrent expenditure from $91 billion in 1992 to $164 billion today. By social welfare, I mean all welfare services and all social security payments. This impressive record should also be placed in the context of an absence in Government borrowing, a low tax regime; and keeping Government expenditure within 18% of GDP. These are stunning statistics - all the more so when they are juxtaposed as I have just done.

Social welfare expenditure has had to increase to address growing challenges and the legitimate aspirations of the community for a better life. By addressing them, we provide the social well-being and stability which is part of the foundation on which our economic strength will continue to be built. And it is that economic strength which provides us with the resources we need to address these challenges in a way we can afford.

I should like to give you some examples of the challenges I believe we face in terms of social welfare provision and then explain how we seek to address them with measures which are effective, affordable and sustainable in the longer term.

I should like to start with the family. This is the cornerstone of our policy. If the family unit is sound, the need for external welfare support is greatly reduced. While we often pride ourselves with moving with the times in many areas of social and economic development, the movement away from the traditional strength of the family unit in Hong Kong is one that I am not particularly proud of. We have moved much more rapidly than most societies from a traditional family structure to one in which both spouses generally work, children and especially adolescents, with much less direct parental supervision, show less respect to their elders, divorces are rising, single parent families are more common and elderly relatives are all too frequently left to fend for themselves. The family is also under pressure from increasing numbers of new immigrants, many of whom have split families with one spouse living in China. The good news is that Hong Kong is always ready to take up the challenge.

Another challenge is demographic; we have an ageing population. In 1971, about 4.5% of our population were over 65 years of age; in 1991 there were about 8.7%; and in 2001 there will be about 11.6%; by 2011, we expect that percentage to grow to 12.2%. Providing services for growing numbers of elderly people for whom families are now less willing to care creates a major challenge.

A related challenge is how to develop our social security system to provide assistance to those in financial need. Four years ago, we were spending $4.4 billion on all our social security allowances; this year, we expect to spend $9.7 billion - a real increase of 71%. The increase in spending on the main means-tested system called the Comprehensive Social Security Assistance Scheme (or CSSA) has been even steeper at 225% in real terms, from $1.4 billion to $5.9 billion this year. Over 10% of our population are receiving some form of social security assistance. The main pressure on this system is coming from the elderly who form by far the biggest group of recipients. With an ageing population, this pressure on our social security system will continue to grow until eventually the proposed Mandatory Provident Fund system will bring into operation a contributory retirement protection system which will provide the financial security needed in old age.

These then are some of the most important welfare challenges we face : the family structure under threat with all the problems which flow from this; an ageing population; and the need to provide adequate social security support for those who cannot support themselves financially.

These challenges must be addressed. We cannot focus solely on economic growth and prosperity. Social stability is also needed to secure our future and is also a key to our future success. There will always be those left behind as the great majority benefit from our growing wealth.

Because of the difficulty of measuring in any objective way the effectiveness of welfare programmes, there is always a danger that they turn into bottomless pits for government funding. That is why every year before we consider any new services or any increase in funding, we carefully re-examine the scope for savings and redeployment from existing resources. As society changes, so services become redundant or at least in need of modification.

In drawing up our welfare budgets, we also take into account the tremendous financial support we obtain in Hong Kong from non-Government sources. Every year millions and millions of dollars are raised by charitable organizations and the Community Chest, in particular, for projects to help the needy in Hong Kong. A uniquely Hong Kong arrangement is the contribution made by the Jockey Club Charitable Trust which last year contributed about $260 million to social service projects.

Every time you buy a Mark Six ticket, you also contribute to charity since a proportion of the takings go to the Lotteries Fund which is currently providing most of the capital for the major expansion of welfare facilities now in hand. Over the last four years $988 million has been drawn down from this Fund to meet the capital costs of new welfare projects. However, charitable donations do not always have to be used to meet capital costs of new welfare projects. When you make a donation to the Community Chest, the money will most likely be disbursed to meet the recurrent expenditure of a welfare agency. Most charitable and welfare causes require recurrent, on-going financial commitments. I hope, therefore, when corporations like those run by your goodselves are to make a charitable donation in future, a greater proportion would consider making a contribution to meeting the recurrent costs of welfare services.

One way, therefore, of being able to afford to meet the welfare challenges, we face is to continue to use these alternative sources of funding to their full potential. Another way of keeping direct government expenditure under control is to continue with our unique and fruitful partnership with non-governmental organizations (NGO's). 90% of our direct welfare services are not provided by Government; they are provided by NGOs subvented by us. This has many advantages. It keeps government small. There are fewer civil servants. More importantly, it injects into the provision of services the innovative and more flexible approach which is more possible outside the constraints of a civil service setting. We are now looking at ways of up-dating some of the systems central to the structure of this partnership. The review of the subvention system is designed to simplify it, to introduce a better monitoring of service quality and performance and to allow NGOs greater flexibility in deploying their subvention to meet the service standards set. We are discussing these changes now with NGOs to ensure the $4 billion of annual subvention we are currently spending obtains the maximum value for money in terms of welfare services.

These then are some of the more general ways we seek to stretch the taxpayer's dollar to achieve good quality welfare services. But let me return now to be more specific about the three challenges I mentioned earlier.

As in our medical services, we find in welfare that prevention is much preferable to cure. For example, the adolescent who has become delinquent, the elderly person already in full time residential care, create a heavy burden on the Government. Intensive services are needed to address the needs of such people. We are, therefore, seeking to channel our resources progressively towards prevention wherever we can. In family services, this means focussing on promoting the importance of family life, on teaching parenting skills, on providing adequate child care services to help families care for their children and minimise the risk of children being left unattended at home. We are also examining how we can identify early youth at risk coming through our school system so that pre-emptive steps can be taken before real problems develop.

For the elderly, we are now engaged in a major study of their residential care needs with a view to mapping out a realistic long term strategy for meeting those needs well into the next century. It is therefore vital we conduct a thorough and fundamental review of how we are going to meet these needs. Such a study is now in hand and will report in mid-1997.

Residential care is a costly solution and one which is not the preferred choice of most people? Our study will be examining how more support can be provided to the elderly in their own homes where most prefer to be. By providing higher quality community nursing and home help to supplement the care given by family and friends, elderly persons should be able to remain at home longer and lead more normal and fulfilling lives as part of our community where they belong. Quality of care and greater cost-effectiveness should happily not be in conflict here.

We must also reinforce the more traditional community values which are under threat. We have just launched our new social networking approach to reaching out to vulnerable elderly people - especially those living alone. The idea is simple - many of the best ideas often are. We shall in a structured way reinforce what we would hope a caring community would in any event do. That is, we shall match vulnerable elderly people with volunteers from their neighbourhood who will visit them regularly and will be in a position to refer them to professional help as may be necessary and give them the company and show the basic care and concern that vulnerable elderly people need. If it succeeds, we shall have helped address a major problem in a way which is both effective in its use of resources and beneficial to all concerned; for I suspect the volunteers will gain almost as much as the elderly from joining in this valuable exercise. The Social Welfare Department and local community organizations will be actively recruiting volunteers for this purpose in the coming months and I would recommend any public spirited person to come forward and sign up.

We do also recognise that we must continue to expand residential care facilities for the elderly but this does not all have to be done purely at Government expense. Subvented homes will always be needed for those who cannot afford the fees which good quality private homes need to charge. But we will need to change the structure of the residential home sector if it is to address successfully future needs. Currently, it is the subvented homes which provide the more consistently higher quality care needed with the private sector often providing facilities for those with the least financial means. We are considering how this can be changed; how we can encourage the private sector to provide more of the higher quality homes for those who can afford them, leaving subvented places for those genuinely needing Government support. In many countries, this is the system that prevails; we need to adjust our own system in a similar way.

But the shortage and cost of land will always create a major barrier for the private sector development of profit-making good quality homes for the elderly. That is why we are also encouraging developers and NGOs to look to the possibility of running homes for elderly Hong Kong citizens across the border in Southern China where the availability and cost of land is less of a constraint. We are about to launch a relaxation of our CSSA Scheme which would allow elderly recipients retiring permanently to Guangdong to continue receiving CSSA payments while living there. This would give elderly CSSA recipients the opportunity of living in an elderly home in Guangdong rather than in Hong Kong if they so wished.

Through this range of initiatives we aim to provide the quality support our elderly citizens require while keeping that support affordable for the community in the longer term.

The other challenge I mentioned earlier was in social security. Our current system is a non-contributory one funded out of Government Revenue. Many advanced economies introduced years ago contributory schemes to provide pensions for elderly persons. We would obviously be in a better position now if such a contributory scheme had been introduced earlier into Hong Kong. The insurance most elderly people have taken out to cover their needs in old age has traditionally been in the form of an investment in their children. But for some, that insurance has not worked. Changes in society have overtaken events and the benefits they had expected to see are now often not forthcoming. Hence the current strain being placed on our non-contributory safety net - the CSSA.

In March this year, we completed a major review of the CSSA system and have introduced improvements costing in total about an additional $500 million per year. The review showed the CSSA system to be sound. It is complicated because it is tailored to address individual needs - and each individual has slightly different needs. We must do more to ensure that the system is better understood, that eligible people come forward to claim its benefits and that service delivery is appropriate. But the system itself is fair. I could think of nothing more irresponsible financially than seeking to hijack such a non-contributory social security safety net system by seeking to make it address a level of need which can only sensibly be met by a contributory retirement protection scheme like our Mandatory Provident Fund.

We are fully aware of this danger and as a responsible government will resist it while, at the same time, doing all we can to improve the CSSA system to help the elderly in the most appropriate way.

There are some costs that we would be unwise to cut. There are two areas in particular where the costs must largely be seen as sensible investments. One area is in the training of more skilled manpower. To meet the challenges ahead, we must be able not only to build but also to staff up the facilities required. We continue therefore to invest in training more social workers and medical and allied health personnel.

The other area is one close to my heart. It is rehabilitation for people with a disability. If ever there was a test for a civilised and humane society, it is to check how it treats those unfortunate enough to have a physical or mental disability. For the most serious cases, residential care is essential. But for most cases, I believe we can talk in terms of investment rather than costs. We invest in a wide range of services with a single goal in mind. That goal is to integrate a person with a disability, as far as his or her potential will allow, into the community. Whether this be in the workplace , in school, in a cultural or social activity or on the sports field, we all win when this happens. Society wins by making use of the contribution these people can make; they win by obtaining the self-fulfilment they deserve as equal members of the community.

I have talked today a lot about costs, investments and benefits. You will all know only too well what these terms mean in business. I do not shy away from applying them also to social welfare. Being caring, being compassionate and understanding of needs does not mean that we ignore the management disciplines we apply to other areas of Government activity. Being financially responsible, does not make us any less caring. I believe we have struck a very important balance in Hong Kong. All we do to help the less fortunate in our society does nothing to undermine our economic strength. Indeed, to the contrary, if we did less in welfare, we would, I believe, undermine the social stability we need to see Hong Kong continue to flourish as a stable and prosperous society well into the next century.

Thank you.