HK faces growing income disparity

Straits Times: Sun, Jul 01

Mr Wong Kwai Keung, 59, takes 11/2 hours to commute from his home in the New Territories to Hong Kong Island where he works as a driver. His homemaker wife Sui Ying, 56, packs him a lunch box as he cannot afford to eat in the central business district where he works, he tells The Sunday Times. Home is a 323 sq ft public rental flat which he shares with his wife and a grown-up son. The rental is an affordable HK$1,600 (S$260), which is why he endures the long commute stoically. Besides, 'the air here is fresher and it is less built-up than in Wan Chai' where he used to live, he says with a smile. Yet, recently, a 3,347 sq ft luxury flat on Hong Kong Island changed hands for HK$93.8 million, or about HK$28,000 per sq ft. Hong Kong, already an unequal society, finds that its income gap has widened as a result of economic restructuring and an ageing population, and exacerbated by inflation and surging housing prices. Its Gini coefficient - which measures income disparity, with a reading of zero meaning income equality and one meaning complete inequality - hit 0.537 last year, according to a report by the Census and Statistics Department released last month. This compares with 0.525 in 2001 and 0.451 in 1981. Singapore's Gini coefficient also rose in the past decade from 0.456 in 2001 to 0.482 last year. In the 15 years since Hong Kong, a former British colony, returned to China and maintained highly autonomous self-rule, the income gap has widened. To be sure, the median income of the working population grew from HK$10,000 in 2006 to HK$12,000 last year, a 20 per cent increase or 3.5 per cent in real terms after adjusting for price changes. But household income of the poorest 10 per cent fell from HK$2,590 in 2001 to HK$2,170 last year, while that of the richest 10 per cent rose from HK$122,740 to HK$137,480. It is no wonder that the less well-off feel that 'life has got harder', as Mr Wong says. Explaining the growth in income disparity, the government report says: 'Restructuring of the economy led to a shift in employment from those goods-producing sectors that have provided more employment and income opportunities to less-educated working persons, towards the financing, business and service sectors that employed a larger proportion of well-educated working persons.' The hollowing out of Hong Kong's manufacturing industry, with factories moving to China from the 1980s after the mainland started economic reforms, has meant the loss of semi-skilled jobs, with the less-educated taking up low-skilled jobs in the service industry instead. Meanwhile, high value- added jobs in finance and other service sectors pushed up salaries of the better-educated. The report cites another factor for the growing income gap: the ageing population, with more people retiring. The number of 'economically inactive households' - or families where no one is working - rose by 48 per cent from 280,000 in 2001 to 420,000 last year. This number is set to rise. The situation has been made worse by surging housing prices and rising inflation. According to data from Centaline Property Agency, real estate prices have spiked by 80 per cent since the beginning of 2009, surpassing levels seen in the 1997 bubble. This means the middle class has been squeezed as well. Thus, a young barrister or doctor can forget about buying a private flat in the urban areas and will have to settle for one in the New Territories where a 600 sq ft flat might go for HK$2 million, said Professor Chan Yan Chong of the City University of Hong Kong. A similar- sized flat on Hong Kong Island might be three times the price. However, the government has taken measures to reduce the income gap. Its tax and social benefits brought the Gini coefficient down to 0.475 last year, unchanged from 2006. These included a work incentive transport subsidy scheme in which employed members of low-income households get a monthly transport subsidy of HK$300 or HK$600 depending on the number of hours worked. The government also introduced a minimum wage of HK$28 an hour in May last year. This boosted the pay of low-wage workers such as janitors and security guards by 20 per cent from HK$4,000 to HK$5,000 a month, noted Professor Stephen Cheung of Hong Kong Baptist University. The government is also reviving a home ownership scheme and will build subsidised flats targeted at first-time home buyers whose monthly household income is below HK$30,000. The first 17,000 flats, with floor areas of 400 sq ft to 500 sq ft, will be on sale from 2016. But analysts and politicians think more can be done to reduce the wealth gap. Pan-democratic lawmaker Emily Lau told The Sunday Times that legislators did not mind if the government were more interventionist. 'The business community doesn't mind increase in taxes by one to three percentage points,' she added. Prof Cheung said Hong Kong needed to expand its tax base particularly as an ageing population meant higher health-care expenditure in the future. Hong Kong has a low tax rate of 15 per cent for personal income and 16.5 per cent for corporate income, and there is no goods and services or value-added tax. Only 30 per cent of the working population pay taxes. The self-employed and small and medium-sized enterprises pay no taxes. He also thought the government should increase public expenditure from the current 20 per cent of gross domestic product, noting that it typically ran budget surpluses. 'It can spend more, five (percentage points) more is no big deal.' The business sector and non-government organisations also need to do more to reduce poverty, he added. Meanwhile, low- or middle-income, Hong Kongers are tightening their belts. This reporter overheard a middle-aged female office worker telling her companion as they came out of the upmarket Pacific Place and headed towards the cheaper Wan Chai district for lunch: 'Food is so devilishly expensive these days, we buy only the amount we will eat.' [e-mail] Source: The Straits Times