Wednesday, January 8, 2014, 07:40
Widening wealth gap demands attention
By Hong Liang

This is going to be a busy year for public consultations. The government has mounted a campaign to encourage people to speak up on political reform. Separately, it has asked the public to express their views on the aging population. There are several public service ads on TV urging the public to offer suggestions for its policy paper and the budget.

Despite constant jeering from the usual crowd of critics and opportunists, the government’s efforts to get the public involved in decision making must be seen in a positive light. For that reason, it is all the more surprising, and disappointing, to note that the government has sidestepped a much more pressing issue that calls for urgent attention, more so, perhaps, than any of those on which public opinions are solicited. That issue is the rapidly widening income gap between the rich minority and the vast majority of the population.

As a primary source of public discontent, such unfairness is tearing the social fabric apart. It is not just the poor who are feeling the pain. Many middle-class families are angered by deteriorating living standards and, more importantly, shrinking opportunities to move up the social ladder.

Some economists and social analysts have maintained that the increasingly daunting hurdle to social mobility, which has particularly demoralized the younger generation, underlies the problem of governance. The government is widely seen to have either got its head stuck in the sand or, worse, work together with the property oligarchy and financial barons to create a prosperity which brought most of the benefits to only a limited few.

These perceptions have understandably sapped public confidence in the government, reflected in the plummeting popularity of the senior officials from Chief Executive Leung Chun-ying down.

To the public, the government’s apparent non-action seems even more baffling when Hong Kong’s large reserves are taken into account. Despite the accumulation of many billions of dollars of public funds, the government continues to complain about the projected cost of social services. The repeated warnings by finance officials that in future Hong Kong may need to dip into its reserves to fund social spending sounds more like a bad joke. Many people believe the government should be drawing on the reserves to improve the woefully inadequate social services for the poor and the elderly.

Social injustice has generated so much bad blood it has soured the spirit of the people. The government can no longer hide behind the pretext of its long-standing economic policy of non-interventionism. That policy dictates that the distribution of wealth should be left to market forces, which are assumed to ensure a trickle-down effect.

This is not happening in Hong Kong because the trickle-down effect has been largely distorted by escalating asset prices, particularly property prices. The high cost of housing has made many people who are not directly involved in the “virtual economy” built on property and finance sectors feel poor and helpless. It is well-known that many families, particularly those in the middle class, have to spend more than half of their household income putting a roof over their heads.

Younger people are especially frustrated in the realization that they may never be able to buy their own homes. As a result, many young couples have put off having children indefinitely, resulting in Hong Kong’s low birth rate which is among the lowest in developing economies, including Japan and Singapore.

The low birth rate, that is way below the accepted replacement level, is cited as the main reason behind the aging population. The government is trying to address the high cost of housing issue by increasing the supply. It has also introduced numerous measures to discourage speculation. But these are having little impact on property prices because developers and property owners are in no hurry to sell.

The government can get involved in wealth distribution by raising taxes on the rich. Or it can broaden the tax base by introducing a sales tax with provisions to minimize its impact on the less-well-to-do families.

The most viable alternative is to rebalance the economy by nurturing a high-value added manufacturing industry that would generate well-paid jobs with promising prospects. This is the topic that concerns the livelihood of the public which should be more than willing to offer their opinions.

The author is a senior editor with China Daily.