According to the report of the study on household income distribution in Hong Kong recently released by the Census and Statistics Department, the income inequality measure Gini Coefficient (based on post-tax post-social transfer monthly household income) in 2011 was 0.475, same as in 2006 and just slightly higher than the 0.470 figure in 2001. In this issue, Dr Chan Kam-wah, Associate Professor at the PolyU Department of Applied Social Sciences, will share with us his insight into this issue.

1/ Although the Gini Coefficient of Hong Kong in 2011 is unchanged as compared to the level in 2006, there have been different voices in the society reflecting Hong Kong’s deteriorating wealth gap problem. Please explain this phenomenon.

In fact, the Gini Coefficient in 2011 is 0.537. The figure has been rising continuously in the past decades and has reached an alarming level. However, the Census and Statistics Department has highlighted the ‘post-tax post-social transfer monthly household income’ index. The fact is that the wealth gap continues to widen, instead of remaining the same.

One limitation of the Gini Coefficient as a measure of wealth gap is that it is only based on income, not all wealth. Rich people in Hong Kong not just depend on salary or income to accumulate their wealth. A lot of their wealth is not reflected in their salary or income.  On the other hand, poor people have less wealth other than their salary. Therefore, Gini Coefficient is an underestimation of the gap between the rich and the poor in Hong Kong.

Hong Kong is notorious for her tax system favouring the rich and the lack of social welfare as compared with welfare states in Western countries. The ‘post-tax and post-social transfer’ coefficient in Hong Kong drops much less than other countries. It shows that Hong Kong’s tax and social welfare systems are less effective in wealth transfer than those in foreign countries.

There is another concern about the political role of the Census and Statistics Department. The Department should assume a neutral role and present the statistics and facts as they are, instead of playing down the problem of wealth inequality. Otherwise, this will affect the credibility of the official statistics of Hong Kong.

2/ What are the key factors behind Hong Kong’s income disparity?

The income disparity in Hong Kong is a consequence of failure in social policies. Government policy is over-protecting the wealthy, especially the large corporations. Many business sectors and public service sectors are highly monopolized. Large corporations enjoy favourable terms while small businesses have to struggle for survival in a very harsh environment. At the same time, working class and lower income groups lack protections in the labour market. Labour policy is inadequate to protect the rights of workers, and some labour policies are not fully enforced. Hong Kong also lacks a comprehensive retirement protection system. This creates an environment for the rich to get richer, and the poor to get poorer.

3/ What effect does the restructuring of the economy and the increase in housing prices have on income disparity?

Some people argue that income inequality is partly the result of economic restructuring. That is, those who possess knowledge and skills are more competitive and so they become wealthy. This does not fully explain income disparity. As compare to countries with similar economic performance, the wealthy people in Hong Kong are much better off. It is not a matter of 'knowledge' and 'skills', but because the government policy favours the wealthy.

Concerning the rapidly increasing housing price, some people may blame the lack of land for housing development or mainlanders for speculating on housing in Hong Kong. In fact, the local land and housing policies favour the monopolization of the big developers and the speculation of private housing. On the other hand, the development of public housing, especially the supply of low cost public rental housing, is lacking far behind demand.

4/ How can the Government counter the wealth gap problem, comparing one-off relief measures with long-term plans?

The core problem of wealth inequality is the ‘over-protection of the wealthy’. A fundamental review of economic and social policies by the Government is needed, balancing between economic growth and social development. Hong Kong needs long-term planning on social policies and services to tackle problems arising from rapid social and economic changes. One-off relief of hardship (flexible welfare) is ineffective in solving social problems.