Impact of Redistributive Policies on Household Income Distribution Ms. Reddy Ng Principal Economist, Economic Analysis and Business Facilitation Unit, Financial Secretary’s Office, HKSAR Government

2 Outline Original Income Distribution Redistributive Policies Framework of Analysis Impact of Taxation Impact of Social Benefits Impact of Taxation & Social Benefits Key Observations Limitations Policy Initiatives

3 Income Distribution % Share of Aggregate Income Lowest decile1.1%0.9%0.8% 2nd decile2.6%2.3%2.1% 3rd decile3.6%3.4%3.2% 4th decile4.6%4.4%4.3% 5th decile5.7%5.6%5.5% 6th decile7.0% 7th decile8.5%8.8% 8th decile10.6%11.1%11.3% 9th decile14.5%15.3%15.6% Highest decile41.8%41.2%41.4% Gini Coefficient

4 Reasons for Greater Income Disparity Economic Factors Social Factors

5 Income Redistributive Policies Taxation Income Tax Profits Tax Rates & Government Rent Others Social Benefits Education Health Public Housing Labour Welfare

6 Revenue Profile in

7 Recurrent Public Expenditure ( Budget) Education22.4% Social Welfare16.6% Health14.3% Security11.1% Infrastructure5.3% Economics4.7% Housing4.4% Environment and Food4.1% Community and External Affairs3.3% Support13.8%

8 Framework of Analysis Original Household Income Social BenefitsTaxation Post-tax Household Income Post-tax Post-social Transfer Household Income Salaries Tax, Property Tax, Rates & Government Rent Education, Housing & Medical Benefits (+) (-)

9 Impact of Taxation Salaries & Property Taxes; Rates & Government Rent 2006 Decile Group Average Monthly Salaries & Property Taxes ($) % Share Average Monthly Rates & Government Rent ($) % Share Lowest00.0%2196.3% 2nd00.0%2015.8% 3rd10.0%2186.2% 4th90.1%2396.8% 5th340.2%2647.6% 6th1130.8%2998.6% 7th2051.4%3239.2% 8th5854.0% % 9th1, % % Highest11, % % Overall1, % %

10 Post-tax Income Distribution

11 Gini Coefficients – before and after Original household income Post-tax household income

12 Impact of Social Benefits Housing, Education & Medical Benefits 2006 Decile Group Average Monthly Housing Benefits ($) % Share Average Monthly Education Benefits ($) % Share Average Monthly Medical Benefits ($) % Share Lowest %6973.9%1, % 2nd %1,5688.9%1, % 3rd %2, %1, % 4th %2, %1,0569.7% 5th %2, %1,0329.5% 6th %2, %9258.5% 7th2259.3%1, %8017.4% 8th1596.6%1,7309.8%7316.7% 9th743.1%1,6019.0%7256.7% Highest120.5%1,4368.1%7286.7% Overall %1, %1, %

13 Post-social Transfer Income Distribution

14 Post-tax Post-social Transfer Income Distribution

15 Gini Coefficients – before and after Original household income Post-tax household income (-0.010) (-0.010) (-0.012) Post-tax post-social transfer household income (-0.052) (-0.055) (-0.058) Per capita original household income (-0.025) (-0.034) (-0.031) Per capita post-tax post-social transfer household income (-0.066) (-0.070) (-0.075)

16 Key Observations Redistributive policies lowered income disparity Stronger redistributive effect over time Social benefits were more effective in reducing income disparity than taxation Smaller per capita income disparity Greater redistributive effect on a per capita basis

17 Limitations Under-estimated government action Only included 23.7% of government operating revenue ($49 billion) Only included 36.4% of public expenditure ($91 billion) Under-estimated original Gini-Coefficient Informal transfer and most welfare payment were included in “original household income”

18 Policy Initiatives – 2008/09 Budget An additional month of standard CSSA payment; Adjustment of CSSA payment rates ahead of the normal schedule this year; A one-off grant of $3,000 to each Old Age Allowance recipient; Waiver of one month’s rent for public housing tenants; Electricity charge subsidy; and Relaxation of eligibility criteria and the subsidy period of the Pilot Transport Support Scheme.

19 Other Policy Initiatives Employment Creation Large-scale infrastructure projects Strengthening of training/retraining Development of social enterprises Youth Provision of 12-year free education Elderly Strengthening of residential care and district community services Conduct studies on how to improve the Old Age Allowance Scheme

20 Thank you

21 Supplementary Information (1) 1 st 2 nd 3 rd 4 th 5 th 6 th 7 th 8 th 9 th 10 th Overall Average Household Size Proportion of Households living in (%): Public Rental Housing Subsidized sale flats Private Permanent Housing Proportion of (%): Owner- occupier Tenant

22 Supplementary Information (2) 1 st 2 nd 3 rd 4 th 5 th 6 th 7 th 8 th 9 th 10 th Overall Proportion of Population by Age (%) < Labour Force Participation Rate (%) Average No. of Working Members Median Monthly Household Income ($) 2,3006,0009,00012,00015,21619,50024,00030,60042,00076,25017,100