Published: 01:32, June 20, 2024
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Public policy must be based on cost-benefit comparisons
By Ho Lok-sang

My last article mentioned the importance of evaluating policies for their social costs and benefits. This week I would like to substantiate my point with two examples.

The first is the Hong Kong Special Administrative Region government’s policy to introduce charges on garbage disposal, which is currently shelved. I of course support introducing refuse collection charges, but I favor the Singapore model of charging each household a fee rather than basing charges on the amount of solid waste collected, whether by weight or by volume. 

The Singapore model is not overly precise. In March, the National Environment Agency (NEA) of Singapore announced that “From 1 July 2024, household refuse collection fees will be revised by S$0.39 (28 cents) per month to S$10.20 for Housing and Development Board flats and non-landed private housing that are in the public waste collection scheme. The fee will be revised by S$1.33 to S$34.00 per month for landed homes. The revised fees ensure that Singapore’s overall waste management system can operate sustainably.” Why did it opt for the easy but imprecise way, rather than the clumsy though more precise way? The reason is simple: It is administratively less costly; it reduces compliance cost; and it will not add to the amount of solid waste generated. These savings in cost allowed Singapore to implement the policy without any delay, which is an additional plus. Singapore introduced islandwide standardized refuse collection fees in July 2012, but different municipalities had been charging different fees much earlier. However, in an attempt to charge solid waste more precisely, Hong Kong has wasted 20 years, and has still not come up with a workable plan.

I would advise that we start collecting fees according to the size of the household. This will be slightly more precise than Singapore’s system. The additional compliance cost and administrative costs are not excessively onerous, but the gains in terms of fairness should be worth it. Apparently Singapore does not collect solid waste management fees from hospitals and old people’s homes. This makes sense, because their solid waste is mainly unavoidable. Recycling in the industrial and commercial sectors helps avoid the gate fees charged at the waste disposal facilities and thus contributes directly to the bottom line. The NEA proactively worked with industry to set up recycling facilities.

The household-based charge which I would propose is justified on many grounds:

First, it is educational. The community will become much more aware of the cost of waste disposal.

Second, an attempt to charge by quantity using authorized plastic bags may lead to environmentally conscious and ethical people paying more, and subsidizing those who are unethical; the latter may well dump garbage illegally without paying, thereby increasing the workload of cleaners and garbage workers. Under a household-based charging program this problem would be avoided.

Third, with the fees from the household-based garbage disposal program, the government would be in a better financial position to strengthen the recycling infrastructure.

I would advise against trying to force the issue in the face of public opinion. Although public opinion may sometimes be wrong, the messiness of the “more precise” charging method is real. The social costs of the messiness are real. In my view, they are much greater than any social benefit gained.

The second example relates to how much the minimum wage should be increased. Those in support of a higher increase argue that the minimum wage currently at HK$40 ($5) per hour should be raised to HK$55 per hour. I have argued that as long as a dollar increase brings more social benefits than social costs, that dollar increase should be allowed. Each marginal increase should be weighed for its marginal cost versus marginal benefit. Even though at the optimum thus derived, workers may still not enjoy a living wage, we have the working family allowance. For a family with one breadwinner working 40 hours a week at HK$40 per hour with two young children, on top of the minimum wage pay of HK$6,720, the breadwinner will be granted full-rate medium allowance per month of HK$1,380 and a full-rate child allowance in the amount of HK$3,220, for a total take-home income of HK$11,320. That would translate into around HK$67 per hour. It is reported that the HK$40 minimum wage is expected to be raised by 4.5 percent this year to HK$41.8. Unsurprisingly, labor advocacy groups forbear to mention the existence of the Working Family Allowance and the Child Allowance. But it is a policy in existence and is performing the job of enabling a living income that labor groups want, without excessively burdening the business sector.

In the United States, California’s new $20 minimum wage took effect on April 1, up from $16. The American Consumer Institute said that the negative effects were almost immediate. Fast food prices rose. Last year, Pizza Hut announced in anticipation of the rise that they would cut all their delivery drivers.

Raising the minimum wage slightly may not produce much adverse effect, and the benefit may outweigh the cost, so it is worth raising it. But a significantly large increase will certainly hurt businesses and employment opportunities, jeopardizing government revenues.

Good public policy must be based on cost versus benefit comparisons.

The author is director of Pan Sutong Shanghai-HK Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.