A new ICAC case reminds us that the Government and public sector get bad value for taxpayers and lose good people by paying time-limited benefits that are based on irrelevant factors rather than the value of their services. Scrap all the benefits schemes and pay people what they are worth. At the same time, remove the housing loophole from salaries tax, raise personal allowances and bring down the tax rate to compensate.

The wrong way to pay civil servants
13 January 2018

Yesterday (12-Jan-2018) the ICAC announced that Jolly Wong Chun Kau, the Chief Telecommunications Engineer of the Hong Kong Police Force, has appeared in Eastern Magistracy on charges of housing allowance fraud. Mr Wong, 58, joined the HKPF in 1981. On 8-Sep-1997 he allegedly submitted a "Statement on Housing and Housing-Related Benefits Received by an Officer/His Spouse" which contained a false statement that he was single, allegedly concealing the fact that his spouse had also received housing benefits. He received a downpayment loan and home financing allowances totalling over HK$1.9m under the Home Financing Scheme (or as the police web site calls it, a "Home Finanching Scheme").

Mr Wong was a member of the HKSAR Advisory Committee on Innovation and Technology from 1-Apr-2015 to 1-Apr-2017 and in Nov-2015 was rumoured to be lined up as Undersecretary for Innovation and Technology, a job which eventually went to someone else. The ICAC says that the case arose from a complaint referred by the Treasury Department. Perhaps the case arose during vetting for the post. Mr Wong is of course innocent unless proven guilty.

The case once again reminds us of the stupidity of Government remuneration policy (see also The Housing Lark, 9-Dec-2006). Rather than paying people of equal skills, experience and productivity the same amount, their remuneration depends in part on whether they are married to someone who is also receiving a housing benefit, whether they have a mortgage, whether they are renting a home and so on. Also, after 10 years, the benefit expires and they receive a drop in remuneration for doing the same work as before. Some good people who are worth more in the private sector then leave, while under-performers who were never worth what they were paid stay on despite the pay cut.

The policy is prevalent not just in Government and the uniformed services but also in other public sector entities such as universities. It certainly results in bad value-for-money for the taxpayer, as at least some of the people who stay on after losing the benefit were paid above the market value of their services while receiving the benefit.

Details of the Police quarters and housing benefits are at this link, including Order 62-25 on "Double Housing Benefits". Rule 4 states:

"An officer and his/her spouse shall not receive more than one housing benefit at any one time, irrespective of whether the benefit is provided by the Government, a public funded organization or a private sector employer."

So there is actually a marriage penalty - it is better to stay unmarried and pool your benefits with your partner.

All of this complexity across the public sector should be scrapped in favour of straight-forward cash remuneration. Pay people what they are worth, no more and no less, regardless of how they choose to spend it. If quarters are currently provided, then a fair market rent should be charged until those properties are sold off in the market, whereupon they would have to bear market rents anyway. There is no reason why the Government should be both a person's employer and landlord or why public capital should be tied up in such property.

The only possible exceptions are properties which are also used for official functions, such as Government House in Upper Albert Road (just charge the Chief Executive rental for the private apartment) and perhaps the Chief Secretary's 1951 Victoria House at 15 Barker Road, the Financial Secretary's 1935 mansion at 45 Shouson Hill Road, and the Secretary for Justice's official residence at 19 Severn Road (which, we assume, does not currently have an illegal basement). There is also the Commissioner of Police's mansion at 50 Magazine Gap Road.

However, it is questionable whether any of these posts, other than Chief Executive, can really justify an official residence when the official concerned could do any necessary entertaining elsewhere. Each of these splendid old houses is a hangover from colonial days when senior officials were sent to Hong Kong for a few years at a time. If it were really felt necessary to keep the houses for entertaining, then they could be leased out as high-end restaurants or "private kitchens" and closed to the public when they are needed to host an official function. Several of them have lovely lawns, also suitable for wedding receptions.

At the same time as scrapping Government and public sector housing benefit schemes, as we have said before, the housing loophole in HK's salaries tax system should be closed. This loophole deems housing provided or reimbursed by the employer to be worth only 10% of cash remuneration for salaries tax purposes, so for example, a person can be paid a monthly salary of $50k and rental reimbursement of $50k but only be taxed on $55k of value, paying much less tax than a person earning $100k in cash. Closing the loophole would of course result in higher revenues, so the tax rate should be cut to a flat rate and personal allowances raised to compensate (for more detail, see Reforming Salaries Tax, 24-Feb-2011).

So whatever happens to Jolly Wong, this remuneration policy is jolly wrong and should be fixed.

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