Hong Kong Think Tank Says Civil Service Cuts Counter Productive

by Mary Swire, Tax-News.com, Hong Kong

03 April 2002

Hong Kong Financial Secretary Antony Leung Kam-chung factored in a 4.75% civil service pay cut in his March Budget to save HK$5 billion a year in the face of the SAR's monster budget deficit, but a leading think-tank said yesterday that cuts to civil service salaries would further dampen weak consumer sentiment.

Better Hong Kong Foundation executive director Alan Siu said the Government needed to address the inflexibility in civil service salaries rather than simply cutting salaries. In its short-term economic forecast released yesterday, the foundation said consumption would also not be helped by likely tax increases in the future as a way to finance the SAR's budget deficits. The foundation said private consumption would shrink 0.8% in the first quarter and 2% in the second quarter, although it thinks that GDP will grow by 1% and 2% in the year as a whole. This would follow the 1.6% economic shrinkage in the fourth quarter of last year, contributing to meagre full-year growth of 0.1%.

"The second quarter of 2002 may well be the turning point of the present economic contraction in the business cycle," foundation chairman Richard Wong Yue-chim said, adding that exports would remain the engine for Hong Kong's growth in the near future.

Mr Siu said the Government could introduce a bonus system similar to the private sector, as the Singapore Government had done, and also advocated de-linking academic pay-scales from the civil service to make them more attuned to the market.

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