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Tackling poverty in Hong Kong requires reform of the economy as a whole

by Tony Read

It is gratifying that the government is taking steps to deal with poverty in the city, as evidenced by the recent report of the Poverty Commission for 2016.

While it is easy to point fingers at bald figures showing that 1 in 5 of the population live below the official poverty line, government intervention has reduced that number to just under one million people. Although this is nothing to be complacent about, it suggests that the problem is being taken seriously.

The Poverty Commission’s 200-page report makes it quite clear just how complex this issue is, as well as how difficult it is even to try to define poverty. The very fact that Hong Kong (like many other jurisdictions) uses a statistical definition based on household income to draw the line means that poverty is to some extent always going to be arbitrary and, more importantly, it means there will always be a percentage of the population below this line.

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File photo: Citizen News.

What the definition does provide is a repeatable means of gauging the effectiveness of the government’s poverty alleviation measures by comparing the figures year-on-year. While this is a useful tool for government action it seems to lack any direct connection to what the general public might identify as poverty.

The Chinese University of Hong Kong recently tried to address this issue by conducting a survey of those who are socially disadvantaged. The criteria they used to define social disadvantage included not being able to afford some basic necessities of life such as dental care, eating three meals a day, or buying new clothes once a year.

The deprivation index they created showed that nearly 25% of the surveyed population were disadvantaged in some way. While a “fixed target” index of this sort helps to provide a snapshot of Hong Kong poverty in concrete terms, it is not so useful for tracking trends, targeting solutions or identifying remedial measures in the more comprehensive way that the Poverty Commission report tried to do.

One of the demographic trends tracked by the government report is the increasing number of elderly, non-wage-earning people.

There is a growing number of one and two person households needing help, in comparison with larger family units, placing a larger drain on government resources. Because of this, the government is looking at ways of offering long-term financial security to retirees who may be cash-poor but asset-rich.

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Although the government is already looking at numerous different solutions to address particular needs, it will also need to approach the issue of poverty in a much more comprehensive manner. Unless the government wants to continue chasing its own tail, it needs to begin to look at poverty in a way which places it within the economy as a whole.

Currently, various government bodies bear responsibility for different parts of the economy, with tightly maintained boundaries. This tends to preclude awareness of the bigger picture, and choice of longer-term goals and objectives.

The Minimum Wage Commission produced a report in October 2016 recommending an hourly increase of HK$2.0 effective from 1 May 2017.

Because the minimum wage has a knock-on effect on the economy, a thorough analysis was conducted of the various economic factors involved in setting a final value. However, when poverty becomes the focus other considerations must be made.

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Poverty alleviation comes from government coffers, whereas an increase in the minimum wage comes from employers’ pockets, directly affecting the profitability and viability of businesses and the economy as a whole. But, more importantly, raising the minimum wage affects the income of the lowest ten percent of wage earners – often those living below the poverty line.

The Poverty Commission didn’t consider what effect this increase in the minimum wage might have on the poverty line during 2017. This seems strange since the single most effective way of improving poverty statistics is to increase the median wage of the lowest income group.

In spite of this, the Minimum Wage Commission report states that “Even though raising the Minimum Wage helps raise the employment earnings of low-paid workers it… should not be the only way of resolving working poverty”. Clearly the “silo” effect is preventing the government from taking a look at ways of tackling poverty by considering it in the wider context of the economy as a whole.

There is one other factor which brings this lack of overview into sharp focus. One of the significant poverty alleviation measures which the government has brought into play is the Low Income Working Family Allowance (LIFA) scheme.

About 10 per cent of the poor population consists of people who are working but whose wage is not sufficient to provide for their needs. These people are given government assistance in the form of LIFA. This could be reinterpreted in another way to say that the government is providing financial support to companies who are not paying their employees a living wage.

While, as said before, the effects of increasing the minimum wage can have big repercussions on the business economy this does suggest that a broader examination of the relationship between the lowest income group and poverty needs to be conducted.

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One thing that is not immediately clear from these two reports is the extent to which income distribution in Hong Kong is skewed towards the top end.

We do know, however, that Kong Kong’s Gini coefficient (which measures the wealth gap between rich and poor) is the second highest behind New York and that the median income of the top ten percent is 44 times greater than that of the lowest ten percent. The high median wage of those in the top ten percent of earners is also responsible for keeping the poverty line set so high.

This imbalance makes it imperative that the chief executive considers how to bring about much needed economic reform for Hong Kong’s economy as a whole. It is not sufficient just to tinker at the edges of the economy and throw government relief measures at the problem of poverty, welcome as they are.

Our low-income wage earners need to know that their contribution to society is as valuable as the highly-paid business executive and that they are being rewarded with a living wage that matches that recognition. Our society is increasingly aware of the inequalities that drive Hong Kong’s divergent lifestyles. What will it take to reduce these extremes and begin a journey towards economic justice?

Tony Read writes on issues of human rights and social justice in Hong Kong.

Tackling poverty in Hong Kong requires reform of the economy as a whole