22 February 2019
Despite opposition from both the business sector and the labor side, outgoing Chief Executive Leung Chun-ying (left) talked proudly about being able to press ahead with his MPF plan against all odds. Photo: HKEJ
Despite opposition from both the business sector and the labor side, outgoing Chief Executive Leung Chun-ying (left) talked proudly about being able to press ahead with his MPF plan against all odds. Photo: HKEJ

CY Leung racing against time to abolish MPF offsetting scheme

Scrapping the so-called offsetting mechanism of the Mandatory Provident Fund Scheme (MPF), under which employers are allowed to settle severance and long-service payments to their laid-off staff using the money they have contributed to the employees’ MPF accounts, is among the key election promises of outgoing Chief Executive Leung Chun-ying in 2012.

Five years on, with only a few days left in office, Leung is racing against time trying to push his proposal to abolish the mechanism through the Executive Council (Exco) and secure its passage, even a rough one.

Apparently, Leung is determined to deliver on this election promise before he leaves office this coming Saturday because he wants himself to go down in history as a chief executive that not only talked the talk, but also walked the walk.

Unfortunately, even if Exco eventually agrees to the government proposal by Friday, chances are it is very likely to be overruled by incoming Chief Executive Carrie Lam who has also pledged to deal with the issue head-on after she assumes office, but who obviously is not satisfied with Leung’s current proposal.

On Sunday, before he set off for Beijing to attend an official event, CY Leung continued to brag about the merits of his proposal, saying that it was hammered out between trade unions and the business sector through years of discussion, and once implemented, will have profound and far-reaching implications for the three million-strong workforce in Hong Kong.

Since so much is at stake with this proposal he talked about proudly, he is determined to see it materialize against all odds. However, in our opinion, we think Leung is not only pressing ahead with his plan against all odds, but also against all will, since both the labor and business sectors have been strongly opposed to his plan since day one. It is said that even Exco members have reservations about his proposal.

According to his proposal in a nutshell, the abolition of the offsetting mechanism should have no retrospective effect. Moreover, he also suggested lowering the proportion of an employee’s monthly wages against which their severance and long-service payments are calculated, down from the existing two-thirds of a month’s wages to just half of a month’s wages as compensation for each year of service.

He also proposed to earmark HK$7.9 billion to subsidize small business owners over their extra expenditures on severance and long-service payments for 10 consecutive years after the abolition.

The labor sector is opposed to Leung’s plan because it drastically slashes the amount of severance and long-service payments to which laid-off workers are entitled. And the business sector is also unhappy with the plan because it is simply against any idea to scrap the existing offsetting mechanism in the first place, because it will substantially increase their operating costs in the long run.

So here is the whole picture: neither the labor nor the business sector supports Leung’s plan, and he even has difficulty persuading Exco into accepting his plan, so what’s the point of pressing ahead with a plan that nobody wants?

Intriguingly, CY Leung told the media that even though he is perfectly happy with his current plan, if the next administration could come up with a better idea, he wouldn’t mind if his entire plan is overruled.

Chief Secretary Matthew Cheung, who will remain in office after July 1, also said candidly he remains well aware that it would be unrealistic to expect their proposal to satisfy both the labor and business sectors at the same time.

However, he added that the current proposal might be flawed, but at least it can facilitate public discussion and provide a solid foundation for the incoming government to improve on, so that it doesn’t have to formulate a plan entirely from scratch.

Cheung also called for more open-mindedness and good faith among both the labor and business sectors in order to facilitate consensus building. He said if the plan is passed by Legco, it can be carried out within three years at the earliest.

The problem is, talking the labor and business sectors into agreeing on the existing plan has already proven almost mission impossible, let alone getting the green light from Legco.

If Carrie Lam is really determined to help all major stakeholders find common ground on this highly polarizing issue and eventually abolish the offsetting mechanism as she promised, perhaps the first thing she needs to do after July 1 is to jettison the “stick-to-the-middle-course” mindset and start thinking out of the box.

In fact, some have already proposed an alternative option to replace the offsetting mechanism, under which the government can set up a three-party fund to which the administration, employers and employees can make contributions regularly, so that in the future employers can settle their severance and long-service payments to their laid-off staff by tapping into the fund. We believe this option is worth further scrutiny by the next government.

This article appeared in the Hong Kong Economic Journal on June 26

Translation by Alan Lee

[Chinese version 中文版]

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