Impact of Redistributive Policies on Household Income Distribution

Ms. Reddy NgPrincipal 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

1996 2001 2006

Lowest decile 1.1% 0.9% 0.8%

2nd decile 2.6% 2.3% 2.1%

3rd decile 3.6% 3.4% 3.2%

4th decile 4.6% 4.4% 4.3%

5th decile 5.7% 5.6% 5.5%

6th decile 7.0% 7.0% 7.0%

7th decile 8.5% 8.8% 8.8%

8th decile 10.6% 11.1% 11.3%

9th decile 14.5% 15.3% 15.6%

Highest decile 41.8% 41.2% 41.4%

Gini Coefficient 0.518 0.525 0.533

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 2007-08

25.2%

14.2%

36.4%

10.8%

2.0%

2.4%

1.7%

3.7%2.6%

1.0%

Salaries Tax & Property Tax ($38.3B)

Non-tax Revenue ($128.6B)Profits Tax ($89.0B)

Stump Duties ($50.0B)

General Rates ($9.3B)

Personal Assessment ($3.4B)

Bets & Sweeps Tax ($13.0B)

Other Tax Revenue ($8.5B)

Fees & Charges ($6.0B)

Duties ($6.9B)

Total Government Revenue, 07-08Revised Estimate: $353.0 billion

7

Recurrent Public Expenditure (2008-09 Budget)

Education 22.4%

Social Welfare 16.6%

Health 14.3%

Security 11.1%

Infrastructure 5.3%

Economics 4.7%

Housing 4.4%

Environment and Food 4.1%

Community and External Affairs 3.3%

Support 13.8%

8

Framework of Analysis

Original Household IncomeSocial Benefits Taxation

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 2006

Decile Group

Average Monthly Salaries & Property Taxes ($)

% ShareAverage Monthly Rates

& Government Rent ($)% Share

Lowest 0 0.0% 219 6.3%

2nd 0 0.0% 201 5.8%

3rd 1 0.0% 218 6.2%

4th 9 0.1% 239 6.8%

5th 34 0.2% 264 7.6%

6th 113 0.8% 299 8.6%

7th 205 1.4% 323 9.2%

8th 585 4.0% 379 10.8%

9th 1,812 12.4% 477 13.6%

Highest 11,904 81.2% 811 25.2%

Overall 1,466 100.0% 350 100.0%

10

Post-tax Income Distribution

Percentage Shares of Original Household Income andPost-tax Household Income for Each Decile Group, 2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Original Household Income Post-tax Household Income

10th: 41.4%

9th: 15.6%

8th: 11.3%

7th: 8.8%6th: 7.0%5th: 5.5%4th: 4.3%3rd: 3.2%2nd: 2.1%1st: 0.8%

10th: 39.4%

9th: 15.8%

8th: 11.7%

7th: 9.2%6th: 7.3%5th: 5.8%4th: 4.5%3rd: 3.3%2nd: 2.2%1st: 0.8%

11

Gini Coefficients – before and after

1996 2001 2006

Original household income

0.518 0.525 0.533

Post-tax household income

0.508 0.515 0.521

-0.010 -0.010 -0.012

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Impact of Social Benefits

Housing, Education & Medical Benefits2006

Decile Group

Average Monthly Housing

Benefits ($)

% Share

Average Monthly

Education Benefits ($)

% Share

Average Monthly Medical

Benefits ($)

% Share

Lowest 278 11.5% 697 3.9% 1,982 18.2%

2nd 402 16.7% 1,568 8.9% 1,612 14.8%

3rd 352 14.6% 2,106 11.9% 1,299 11.9%

4th 353 14.6% 2,277 12.9% 1,056 9.7%

5th 306 12.7% 2,263 12.8% 1,032 9.5%

6th 246 10.2% 2,058 11.6% 925 8.5%

7th 225 9.3% 1,960 11.1% 801 7.4%

8th 159 6.6% 1,730 9.8% 731 6.7%

9th 74 3.1% 1,601 9.0% 725 6.7%

Highest 12 0.5% 1,436 8.1% 728 6.7%

Overall 241 100.0% 1,770 100.0% 1,089 100.0%

13

Post-social Transfer Income Distribution

Percentage Shares of Original Household Income andPost-social Transfer Household Income for Each Decile Group, 2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Original Household Income Post-social Transfer Household Income

10th: 41.4%

9th: 15.6%

8th: 11.3%

7th: 8.8%6th: 7.0%5th: 5.5%4th: 4.3%3rd: 3.2%2nd: 2.1%1st: 0.8%

10th: 38.2%

9th: 15.1%

8th: 11.3%

7th: 9.0%6th: 7.5%5th: 6.2%4th: 5.1%3rd: 3.9%2nd: 2.6%1st: 1.1%

14

Post-tax Post-social Transfer Income Distribution

Percentage Shares of Original Household Income andPost-tax Post-social Transfer Household Income for Each Decile Group, 2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Original Household Income Post-tax Post-social Transfer Household Income

10th: 41.4%

9th: 15.6%

8th: 11.3%

7th: 8.8%6th: 7.0%5th: 5.5%4th: 4.3%3rd: 3.2%2nd: 2.1%1st: 0.8%

10th: 36.2%

9th: 15.3%

8th: 11.7%

7th: 9.4%6th: 7.8%5th: 6.5%4th: 5.3%3rd: 4.0%2nd: 2.7%1st: 1.1%

15

Gini Coefficients – before and after

1996 2001 2006

Original household income

0.518 0.525 0.533

Post-tax household income

0.508

(-0.010)

0.515

(-0.010)

0.521

(-0.012)

Post-tax post-social transfer household income

0.466

(-0.052)

0.470

(-0.055)

0.475

(-0.058)

Per capita original household income

0.493

(-0.025)

0.491

(-0.034)

0.502

(-0.031)

Per capita post-tax post-social transfer household income

0.427

(-0.066)

0.421

(-0.070)

0.427

(-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 reve

nue ($49 billion) Only included 36.4% of public expenditure ($91 bi

llion)

Under-estimated original Gini-Coefficient Informal transfer and most welfare payment were i

ncluded 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 no

rmal schedule this year; A one-off grant of $3,000 to each Old Age Allowan

ce recipient; Waiver of one month’s rent for public housing tena

nts; Electricity charge subsidy; and Relaxation of eligibility criteria and the subsidy peri

od 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)

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Overall

Average Household Size

1.7 2.3 2.7 3.0 3.1 3.1 3.3 3.3 3.3 3.2 2.9

Proportion of Households living in (%):

Public Rental Housing

42.4 54.7 47.4 45.2 37.6 29.2 25.0 17.0 9.3 2.6 31.1

Subsidized sale flats

11.8 10.1 13.2 15.5 19.0 21.3 23.5 22.6 18.6 7.2 16.3

Private Permanent Housing

43.6 33.8 37.9 38.2 42.5 48.6 50.9 59.8 71.5 89.6 51.6

Proportion of (%):

Owner-occupier

49.3 31.1 36.1 39.6 47.5 54.9 60.0 66.4 71.9 71.0 52.8

Tenant 47.3 67.4 62.6 59.3 51.4 43.9 39.0 32.5 27.2 28.1 45.9

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Supplementary Information (2)

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Overall

Proportion of Population by Age (%)

< 15 7.5 15.3 18.9 17.2 15.1 13.7 11.7 12.0 13.6 18.0 14.5

15-64 46.6 62.7 68.7 71.4 75.4 77.7 80.7 80.7 79.7 75.4 73.6

65+ 45.9 22.1 12.4 11.4 9.5 8.6 7.5 7.3 6.7 6.6 11.9

Labour Force Participation Rate (%)

16.3 37.4 46.5 54.0 60.4 64.6 70.5 72.9 75.0 73.4 60.1

Average No. of Working Members

0.2 0.6 0.9 1.2 1.5 1.7 2.0 2.2 2.3 2.3 1.5

Median Monthly Household Income ($)

2,300 6,000 9,000 12,000 15,216 19,500

24,000 30,600 42,000 76,250 17,100