Impact of Redistributive Policies on Household Income Distribution

1
Impact of Redistributive Policies on Household
Income Distribution

• Ms. Reddy Ng
• Principal Economist,
• Economic Analysis and Business Facilitation Unit,
  
• Financial Secretarys 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
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 Income
Social Benefits
Taxation
(-)
Salaries Tax, Property Tax, Rates Government
Rent
Post-tax Household Income
()
Education, Housing Medical Benefits
Post-tax Post-social Transfer Household Income
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Impact of Taxation

• Salaries Property Taxes Rates Government
  Rent

2006 2006 2006 2006
Decile Group Average Monthly Salaries Property Taxes () Share Average 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
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 Benefits

2006 2006 2006 2006 2006 2006 2006
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
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Post-social Transfer Income Distribution
14
Post-tax Post-social Transfer Income Distribution
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)
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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

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Limitations

• Under-estimated government action
• Only included 23.7 of government operating
  revenue (49 billion)
• Only included 36.4 of public expenditure (91
  billion)
• Under-estimated original Gini-Coefficient
• Informal transfer and most welfare payment were
  included in original household income

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Policy Initiatives 2008/09 Budget

• An additional month of standard CSSA payment
• Adjustment of CSSA payment rates ahead of the
  normal schedule this year
• A one-off grant of 3,000 to each Old Age
  Allowance recipient
• Waiver of one months rent for public housing
  tenants
• Electricity charge subsidy and
• Relaxation of eligibility criteria and the
  subsidy period of the Pilot Transport Support
  Scheme.

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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 () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () Proportion of Households living in () 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 () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () Proportion of () 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 6th 7th 7th 8th 8th 9th 9th 10th 10th Overall Overall
Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age () Proportion of Population by Age ()
lt 15 7.5 15.3 18.9 17.2 15.1 15.1 13.7 13.7 11.7 11.7 12.0 12.0 13.6 13.6 18.0 18.0 14.5
15-64 46.6 62.7 68.7 71.4 75.4 75.4 77.7 77.7 80.7 80.7 80.7 80.7 79.7 79.7 75.4 75.4 73.6
65 45.9 22.1 12.4 11.4 9.5 9.5 8.6 8.6 7.5 7.5 7.3 7.3 6.7 6.7 6.6 6.6 11.9
Labour Force Participation Rate () 16.3 37.4 46.5 54.0 60.4 60.4 64.6 64.6 70.5 70.5 72.9 72.9 75.0 75.0 73.4 73.4 60.1
Average No. of Working Members 0.2 0.6 0.9 1.2 1.5 1.5 1.7 1.7 2.0 2.0 2.2 2.2 2.3 2.3 2.3 2.3 1.5
Median Monthly Household Income () 2,300 6,000 9,000 12,000 15,216 15,216 19,500 19,500 24,000 24,000 30,600 30,600 42,000 42,000 76,250 76,250 17,100