19 April 2019
In Hong Kong, many middle-income workers cannot afford a tiny flat even if they save most of their earnings after expenses. Photo: HKEJ
In Hong Kong, many middle-income workers cannot afford a tiny flat even if they save most of their earnings after expenses. Photo: HKEJ

The dilemma facing the middle-income, low-asset class

Financial Secretary Paul Chan Mo-po delivered the annual budget policy address on Wednesday, offering generous tax rebates, widened tax band and higher tax allowances, but no across-the-board cash handouts. 

Some have criticized this year’s budget for favoring the middle class over the grassroots. However, even middle-class families can hardly afford a cell-sized flat.

The term “middle class” first appeared in Britain in the 18th century. It was used to describe the intermediate social class between the nobility and the peasantry of Europe as capitalism started to emerge.

In the past, income was closely linked with assets. Middle-income professionals such as doctors, lawyers and accountants were mostly able to afford a decent place to live in, and typically led a rather comfortable life.

But nowadays, “middle class” has to be more clearly defined. Middle class as middle income class or middle asset class could mean very different things.

As Thomas Piketty noted in his book Capital in the Twenty-First Century, assets are playing a bigger role than income in wealth inequality. In Hong Kong, for example, it is not uncommon that middle-income workers are unable to afford a tiny flat even if they save up most of their earnings.

This middle-income, low-asset class may be among those who struggle the most in the city.

Taking into account the tax rebates, higher child and dependent allowances, etc., it’s estimated that a couple with two children will be able to save HK$10,000 in tax payments if they earn a combined HK$700,000 a year.

But these middle-income families don’t qualify for any public rental housing or public home ownership scheme. After all the bill payments, rent, food and transportation expenses, they hardly have anything left to save to buy a flat, let alone invest in other assets such as equities or bonds to generate extra income.

In the meantime, rapid technological changes have allowed companies to opt for leaner structures and eliminate many staff positions. This in turn has affected the job security of many workers.

Indeed, the future of those stuck in the middle-income, low-asset category looks dim.

This article appeared in the Hong Kong Economic Journal on March 1

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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