HK should roll out more consumption vouchers, relax eligibility for social welfare as pandemic drags on, IMF says

21-Jan-2022 Intellasia | South China Morning Post | 5:02 AM Print This Post

Hong Kong should roll out a fresh round of consumption vouchers and relax the eligibility criteria for social welfare assistance as part of its targeted measures to help vulnerable residents and small businesses amid the ongoing Covid-19 pandemic, according to the International Monetary Fund’s (IMF) annual assessment of the city.

The international organisation on Thursday also called on the government to introduce fiscal policies to address the structural challenges of its ageing population, high income inequality, and insufficient housing supply.

“In the near term, fiscal measures should be more targeted to support low-income households, unemployed workers, and affected SMEs [small and medium-sized enterprises]… that would allow more effective identification and delivery of support to the most vulnerable,” the IMF said.

“For example, additional electronic consumption vouchers could be distributed to low-income households that meet the assistance criteria.”

The IMF also suggested temporarily relaxing the eligibility criteria for the Comprehensive Social Security Assistance scheme in order to provide more help to the unemployed.

“Over the medium term, the introduction of a dedicated unemployment benefit system could be considered to expand automatic stabilisers and better protect the labour force against idiosyncratic and systemic shocks,” it said.

Financial Secretary Paul Chan Mo-po is already facing mounting calls from lawmakers to roll out a fresh round of the digital consumption vouchers and more sweeteners amid a widening outbreak of the Omicron variant, which has prompted the government to revive strict social-distancing rules. Chan is expected to announce his budget on February 23.

Last year, eligible Hong Kong residents were each granted HK$5,000 (US$642) worth of e-vouchers from the government to spend at local shops and restaurants in a bid to accelerate the city’s economic recovery during the pandemic. The HK$36 billion initiative was expected to contribute 0.7 per cent growth to last year’s gross domestic product.

The IMF noted Hong Kong’s economy was strongly recovering, as the government took “swift and bold” steps, such as a large stimulus package to tackle multiple shocks, including the sweeping social unrest of 2019, heightened US-China tensions and the Covid-19 pandemic.

In the first nine months of 2021, Hong Kong’s economy grew 7 per cent year-on-year, on the back of robust exports, exceeding the government’s forecast of between 5.5 and 6.5 per cent on a full-year basis.

Chan later said Hong Kong’s GDP could end up growing 6.4 per cent for 2021, after the city emerged from a pronounced recession.

However, the IMF warned of an “uneven” recovery, with private consumption lagging, and tourism and contact-intensive activities especially hard hit by Hong Kong’s zero-Covid strategy. The body predicted that economic growth would slow this year to below 3 per cent due to the pandemic’s lingering effects and “structural headwinds such as population ageing”.

The city’s government should roll out policies to address these structural issues, the IMF said.

“There is room to strengthen the provision of medical services and financial assistance for the elderly population, notably among low-income households,” it said.

“Stepping up expenditure to increase public housing and related infrastructure investment would be critical in addressing the large housing supply-demand imbalance, improving housing affordability, and reducing poverty and inequality.”

To address long-term fiscal needs, the IMF said a comprehensive tax reform over the medium term remained “imperative”.

“International benchmarking suggests that there is room to introduce a VAT, raise excise taxes, and increase the progressivity of the personal income tax by raising the tax rates on top brackets,” it said, adding that proposed taxes on capital gains and dividends should also be considered.


Category: Hong Kong

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