Are YouBeing Served?

Thoughts on the interface betweenHong Kong’s public and private sectors

David O’RearChief Economist

The Hong Kong General Chamber of Commerce

Q-4 2010

Plan of Action•A look at the coming decade

•Some trends, and implications

•What others are doing

•Benchmarking: How we stack up

•Where to pick up the pace, and do better

•The Business Community’s View

In the coming decade . . .•The economy may well grow 3 - 4% per annum, to HK$2.7 trillion, or about US$45,000 per capita for our ~7.7 million people.

•By age, 75% will be 20-70 years old in 2020 (71.7% today), about 16% below that age (18.5% now) and the rest retirees. A lot of retirees!

In the coming decade . . .•The Civil Service will also age, losing its most experienced talent. Others might leave because the MPF isn’t much of an incentive to stay.

•We might expect the 18-20% of residents who pay Salaries Tax to remain fairly constant, but they will have to shoulder a larger burden.

•The challenge for all of us is to do more with less.

• In the past three years, public expenditure has equaled ~20% of GDP. 20 years ago, it was 15%.

•Over the past 20 years, government spending increased about 6.8% a year, the nominal economy 5.4% and real growth 3.8% p.a.

Doing More with Less

•We have the narrowest tax base in the developed world, and we have very strong aspirations for greater political representation.

• If we don’t build a direct connection between the pocketbook, and the policy book, we’re going to get into trouble.

Doing More with Less

•All but five OECD countries use some kind of fiscal rules to constrain spending.

•An average 45% of OECD government spending is out-sourced.

• Private actors provide 23% of OECD government-funded services.

•Here in Hong Kong, we are much more focused on creating efficiency within government, rather than between government and the “customer.”

We aspire to the OECD, but we’re falling behind.

When was the last time . . . ?

•When was the last time a department asked if it really needed to collect certain information in order to do its job?

•When was the last time a proposal for a new initiative began with the assumption that it would be provided by the private sector?

When was the last time . . . ?•When was the last time a regulation was removed from the books?

•When was the last time we benchmarked ourselves against the very best public sector practices in the world?

•When was the last time we asked if the fiscal reserves are too big?

BenchmarkingWorld Bank Doing Business in 2010: 3rd

Starting a business 18th

Registering property

11th

Dealing with construction permits

1st

(b) 45 days OECD avg 25(a) 5 procedures OECD avg 4.7

Total tax rate: 24.2% (NOT 16.5%)

Heritage Foundation Economic Freedom Index

1st

Cites non-tariff barriers such as nutrition labelling

WEF Global Competitiveness Index

75th

Points off for health and education short comings

OECD Government Simplification StrategiesNumber of Governments

30

19

25

30

29

27

21

Reallocate power / responsibility amongdepartments / levels

Streamlines procedures

Use of IT

Streamlines existing laws

Removes obligations

Sets quantitative targets

Has a plan to reduce red tape

N/A

N/A

19982008

N=33

OECD Trends in Regulatory Impact AnalysisNumber of Governments

0

5

10

15

20

25

30

35

1980 1990 2000

#

1985 1995 20051975

We readily accept environmentalimpact analysis requirements, butwe are far behind in providingregulatory impact assessment

N=33

The Civil Service•Hong Kong’s civil service is a huge competitive advantage. And, the business community is happy to pay for it. As compared to the general community, who are mostly tax-free.

•And, we wish Government would do things just a bit better.

• It is time to modernise human resource management.

• It is time to decentralise decision-making, particularly where personnel matters are concerned.

• It should have been done 20 years ago.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8New Zealand

Sweden

Australia

Iceland

United Kingdom

United States

Finland

Canada

Germany

Norway

O ECD26

Belgium

Japan

Korea

Denmark

Netherlands

Switzerland

Portugal

Hungary

Spain

Austria

Luxembourg

Mexico

Italy

Ireland

France

Turkey

Delegation of Human Resource Managementin the Civil Service (0=none; 1=full)

Source: OECD

Where would Hong Kong rank?

Average

UK

Japan

Austria

From Bureau to Trading Funds to . . . ?

What’s next in privatisation?

•Trading funds were a 1990s political stop-gap; they have served their purpose rather well.

•The next step is full privatisation, and graduation of another generation of bureaux to trading fund status.

From Bureau to Trading Funds to . . . ?

Electrical and Mechanical ServicesWater Supplies

Architectural ServicesSurvey and Mapping Office

All manner of transport

Industrial Technology Centre

Vocation TrainingTrade Development Council

Printing Department

Some candidates

Government Laboratory Drainage Services

One last word•The members of the Chamber frequently raise matters of policy and priorities with the Administration and the Legislative Council. That’s our job.

•We understand that many of the issues raised here today are matters of policy, rather than execution. We also understand that the CS has influence over policy.

•We strongly believe Hong Kong is blessed with one of the best civil services in the world, and we want to keep it that way. Our suggestions and advice are offered in that spirit.

Thank Youfor your attention

and for your serviceto Hong Kong