(This essay was published in the South China Morning Post on 28 November 2018.)
The recent Hong Kong Poverty Situation Report 2017 announced that 1.377 million people are living below the poverty line, 25,000 more than in 2016. The poverty rate thus rose 0.2 percentage points to 20.1 per cent. After government cash transfers including the Old Age Living Allowance (OALA) and Low Income Working Family Allowance (LIFA) are factored in, the poverty figure fell to 14.7 per cent, or 1.01 million, a rate similar to the previous year.
Critics have responded by faulting the government for not doing enough to alleviate poverty. They are demanding the government increase the minimum wage and address elderly poverty, which they claim has increased by “over 40,000” over the past 5 years.
Both criticisms are wrong.
Following a great battle over poverty alleviation policy in Hong Kong in 2013, the social advocates (such as Oxfam and the Hong Kong Council of Social Services) won the day when the government agreed to adopt the poverty line definition used in Europe. Households in poverty are deemed to be those that earn less than 50 per cent of the population’s median household income—a relative economic concept of poverty.
The government’s poverty alleviation policy—the Low Income Working Family Allowance (LIFA)—was a direct application of the poverty line concept to reduce the number of economically active households deemed to be in poverty under this definition.
However, the numbers coming forward to apply for LIFA have been only about half of that initially projected by social advocatesand expected by the government. This is proof that the poverty line overestimates the true number of working poor.
This is not to imply in any way that LIFA has not alleviated poverty among the working poor, only that the extent of poverty among the economically active population was exaggerated by the poverty line.
A key reason for the increase in households and persons living below the poverty line is the increase in elderly households above the age of 65, which have risenby 83,000 over the past five years and the increase in those below the poverty line was 68,000. After government intervention measures in the form of cash transfers are taken into account the increase in elderly poor was reduced to 27,000.
Moreover, many elderly live in public housing – about half of elderly households versus less than a quarter of households below age 65. No wonder the youth are angry and agitating.
All of this points to the fact that that our poverty line is uniquely unsuitable for measuring economically inactive elderly households and fails to account for in-kind transfers like public rental housing.
Removing the elderly population (or non-working age population) from the calculation of the poverty line would improve the usefulness of the present poverty definition as an indicator of relative poverty. It could then become an indicator of poverty among the working age population rather than a hybrid measure of two completely different populations that require different poverty alleviation policy measures.
A separate poverty line for the elderly could be readily constructed that is anchored in consumption spending, like that used in the United States which is largely driven by food consumption expenditures. Housing expenditure could then be isolated and separately treated. The European conception of poverty line, by comparison, is anchored in income and the elderly are mostly economically inactive. This is the primary problem with our poverty indicator.
Poverty is not an insurmountable problem and misleading news headlines that suggest so are most unfortunate. Child poverty, to the extent that it arises from low parental income, can be tackled directly through LIFA.
The real challenge for Hong Kong is near poverty and it is primarily a problem of the younger working population, whose earnings are low relative to their desired expenditure on housing, which is expensive.
For those who are unable to get subsidised housing and do not live with their parents, near poverty is a deterrence to family formation. Empirical evidence in Hong Kong has also shown that divorce propensity is reduced by more than half among families that are homeowners than among renters. Homeownership is also an asset that can support old age retirement, business start-ups and other events in life.
A young family without their own home that is facing rising housing prices and meagre income growth is in near poverty. This problem cannot be adequately addressed by LIFA or OALA, or even a massive public rental housing program. It needs to be addressed through a housing strategy that helps young people to become homeowners through access to housing finance.
The real challenge in rising Hong Kong is not the relative poverty of the elderly or of children, but near poverty of the young working adult that cannot save enough to become a homeowner in time to share in the growing prosperity of the city.