28 October 2016
Hong Kong government gave all permanent residents HK$6,000 in 2012. Such moves are seen as one-off relief measures and unsustainable over the long term. Photo: Internet
Hong Kong government gave all permanent residents HK$6,000 in 2012. Such moves are seen as one-off relief measures and unsustainable over the long term. Photo: Internet

Cash handout for everyone?

Permanent residents in Macau will get another generous cash handout — 9,000 Macau patacas (US$1,127) — from their government next month, for the eighth year.

Now, questions are being raised whether the city can afford such a measure again in 2016, given the slide in gambling revenues in recent months.

Macau, in fact, is not the only place that is offering “free lunch” to its citizens.

The Finnish government, for one, is mulling over cash premiums for its citizens. Under the plan, called unconditional basic income, each and every resident in the Scandinavian nation — regardless of his income – will be given a fixed monthly sum of money. 

Sounds like Utopia?

Most governments, it must be said, are wary of such a rebate. Greece is a shining example of how things have all gone wrong with welfarism.

Here in Hong Kong, the government has shunned calls to offer HK$3,000 to the elderly every month even though it was sitting on gigantic fiscal reserves of HK$819.5 billion (US$105.7 billion) and foreign currency reserve assets of up to US$332.2 billion as at the end of March.

Finland has a population of 5.5 million, smaller than Hong Kong, and its per capita GDP as measured by purchasing power parity stands at US$40,000, ranked 25th globally and 27 percent lower than Hong Kong’s level (US$55,000).

Its economy has been stuck in recession for three years, prompting the Financial Times to call it “Sickman of Europe”. Nokia in its heyday contributed a fourth of the nation’s corporate tax revenue but the phone maker’s collapse in the smartphone era is being blamed for the sagging economy.

The broader, bleak depression in Europe has further pushed up Finland’s unemployment rate to 10 percent.

A coalition of middle to leftist parties has kicked out the center-right governing party in the April election with an utilitarianism manifesto including immediate launch of the unconditional basic income scheme. 

There is no means test, nor do recipients have to work for the income. Feel tempted?

But one should note that the new government is also looking to slash and eventually scrap expenditure for existing social welfare and assistance including unemployment compensation, housing allowances, pensions and the like, as it is believed that the amount of unconditional basic income should cover all the expenses to make a living. 

In the context of Hong Kong, this policy means giving out HK$10,000 to each person and abolishing the Comprehensive Social Security Assistance and Social Security Allowance.

Advocates argue that the existing social welfare regime entails additional expenditure for asset tests and administrative costs, and recipients have little autonomy in the use of the assistance. Thus, the kind of one-size-fits-all approach is more cost-effective.

Finland is also on sound fiscal standing for the trial: national borrowings equal to just 59 percent of its gross domestic product, the lowest among all EU member nations. Comparatively, Germany’s public debts amount to 75 percent of its GDP, Italy 132 percent and Greece 177 percent.

It is said that the proposed amount of monthly cash handout will be in the 620-1166 euro range.

Critics are worried that many Finns may opt to quit their jobs if they can make ends meet with the handout money. In such a scenario, the government can be said to be subsidizing the lazy. And the economy will suffer if the minority working class is paying for lunch for the majority unemployed.

The government may also find itself in another dilemma: should it help those who use up all the money and become penniless before the end of the month?

Indeed, we have being hearing lots of similar rebates or dole-out plans in recent years.

Retirees in Greece, for instance, were the envy of the entire Europe as they once got over 500 euro a month with two-months’ of extra payments each year until the debt crisis befell the nation in 2009. The Greek government’s current pension expenses still take up 16.2 percent of its GDP, more than twice the average level of the OECD member countries.

The army of intelligent robots may crowd out average job hunters and high employment rate may become the new normal. The role of the government in the secondary allocation of wealth is crucial.

But handing out cash sweeteners is always far more complex than it looks as the policy encompasses a wide spectrum of related issues, and, it is always easier to increase than to cut recurrent expenditure.

Even Hong Kong and Macau governments — far more well-off than the “PIIGS” nations — are mindful of the consequences and won’t prematurely jump on the bandwagon.

The whole world is watching the Finnish experiment.

This article first appeared in the Hong Kong Economic Journal on June 22.

Translation by Frank Chen

[Chinese version 中文版]

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Macau’s leader Fernando Chui has announced that the government will be handing out cash to the city’s residents for the eighth year. Photo: Internet

Hong Kong Economic Journal columnist

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