Are You Being Served? Thoughts on the interface between Hong Kong’s public and private sectors David O’Rear Chief Economist The Hong Kong General Chamber of Commerce Q

Plan of Action A look at the coming decade Some trends, and implications What others are doing Benchmarking: How we stack up Where to pick up the pace, and do better The Business Community’s View

In the coming decade... The economy may well grow 3 - 4% per annum, to HK$2.7 trillion, or about US$45,000 per capita for our ~7.7 million people. By age, 75% will be years old in 2020 (71.7% today), about 16% below that age (18.5% now) and the rest retirees. A lot of retirees!

In the coming decade... The Civil Service will also age, losing its most experienced talent. Others might leave because the MPF isn’t much of an incentive to stay. We might expect the 18-20% of residents who pay Salaries Tax to remain fairly constant, but they will have to shoulder a larger burden. The challenge for all of us is to do more with less.

In the past three years, public expenditure has equaled ~20% of GDP. 20 years ago, it was 15%. Over the past 20 years, government spending increased about 6.8% a year, the nominal economy 5.4% and real growth 3.8% p.a. Doing More with Less

We have the narrowest tax base in the developed world, and we have very strong aspirations for greater political representation. If we don’t build a direct connection between the pocketbook, and the policy book, we’re going to get into trouble. Doing More with Less

All but five OECD countries use some kind of fiscal rules to constrain spending. An average 45% of OECD government spending is out- sourced. Private actors provide 23% of OECD government-funded services. Here in Hong Kong, we are much more focused on creating efficiency within government, rather than between government and the “customer.” We aspire to the OECD, but we’re falling behind.

When was the last time... ? When was the last time a department asked if it really needed to collect certain information in order to do its job? When was the last time a proposal for a new initiative began with the assumption that it would be provided by the private sector?

When was the last time... ? When was the last time a regulation was removed from the books? When was the last time we benchmarked ourselves against the very best public sector practices in the world? When was the last time we asked if the fiscal reserves are too big?

Benchmarking World Bank Doing Business in 2010: 3rd Starting a business18th Registering property 11th Dealing with construction permits 1st (b) 45 daysOECD avg 25 (a) 5 proceduresOECD avg 4.7 Total tax rate: 24.2% (NOT 16.5%) Heritage Foundation Economic Freedom Index 1st Cites non-tariff barriers such as nutrition labelling WEF Global Competitiveness Index 75th Points off for health and education short comings

OECD Government Simplification Strategies Number of Governments N/A N=33

OECD Trends in Regulatory Impact Analysis Number of Governments # We readily accept environmental impact analysis requirements, but we are far behind in providing regulatory impact assessment N=33

The Civil Service Hong Kong’s civil service is a huge competitive advantage. And, the business community is happy to pay for it. As compared to the general community, who are mostly tax- free. And, we wish Government would do things just a bit better. It is time to modernise human resource management. It is time to decentralise decision-making, particularly where personnel matters are concerned. It should have been done 20 years ago.

Delegation of Human Resource Management in the Civil Service (0=none; 1=full) Source: OECD Where would Hong Kong rank? Average UK Japan Austria

From Bureau to Trading Funds to... ? What’s next in privatisation? Trading funds were a 1990s political stop-gap; they have served their purpose rather well. The next step is full privatisation, and graduation of another generation of bureaux to trading fund status.

From Bureau to Trading Funds to... ? Electrical and Mechanical ServicesWater Supplies Architectural Services Survey and Mapping Office All manner of transport Industrial Technology Centre Vocation Training Trade Development Council Printing Department Some candidates Government LaboratoryDrainage Services

One last word The members of the Chamber frequently raise matters of policy and priorities with the Administration and the Legislative Council. That’s our job. We understand that many of the issues raised here today are matters of policy, rather than execution. We also understand that the CS has influence over policy. We strongly believe Hong Kong is blessed with one of the best civil services in the world, and we want to keep it that way. Our suggestions and advice are offered in that spirit.

Thank You for your attention and for your service to Hong Kong