LC Paper No. CB(1) 1736/98-99(02)

Legislative Council Panel on Public Service
Fringe Benefits of Staff in Subvented Organisations

Introduction

There are over 87 000 staff¹ in non-Government organisations (NGOs) receiving Government subventions to deliver a wide range of education, welfare and health services. Total Government recurrent expenditure on subventions in 1998-99, excluding the Hospital Authority, amounts to $44,265 million.

Present Subvention Policy

2. The main principles of Government's subvention policy are :

1. the pay and conditions of service for staff of the subvented sector should be no better than their counterparts in the civil service; and

2. there is no automatic extension of civil service terms and conditions of service to staff in the subvented sector.

Under these principles, subvented organisations receive different levels of grant from the Government. Subvented organisations can, taking into account their own circumstances, financial resources and other relevant factors, set reasonable recruitment packages to recruit their own staff. It would not be appropriate to do a strict comparison of the levels of fringe benefits enjoyed by staff in subvented organisations and by civil servants.

3. We accept that NGOs need to remunerate their staff at a reasonable level in order to recruit and retain the right calibre of people. Hence, appropriate retirement protection for staff and other statutory payments by employers to employees are recognised for subvention purposes.

4. We note the requests from staff of subvented organisations for improvements to their fringe benefits from time to time. Where overall budgetary conditions permit and priority for resources could be justified on policy grounds, we would be prepared to consider narrowing the gap between the fringe benefits of civil servants and those for staff in the subvented sector. For example, we introduced the Mortgage Interest Subsidy Scheme (MISS) for employees in aided schools and in subvented welfare and health organisations in 1993 after careful consideration of the affordability of the proposal against our budgetary criteria and its relative priority against other claims.

Budgetary and Resource Considerations

5. One of our fundamental budgetary principles is that Government expenditure, over time, should grow at a rate no faster than the forecast trend growth of the economy. Although the economy contracted by 5.1% in 1998 and is expected to show only modest growth in 1999, the Government has maintained its spending plans in 1998-99 and 1999-2000 so as not to drive the economy deeper into recession or set back the prospects for economic recovery. As a result, the cumulative growth of government expenditure has now significantly exceeded that of Gross Domestic Product. In order to close this gap and to put our medium-term finances on a healthy footing, we need to exercise careful control over the growth in government expenditure over the next few years. The money available to meet new spending initiatives is clearly limited. Where spending aspirations exceed the money available, which is invariably the case, prioritisation is inevitable.

6. In considering improvements to the level of fringe benefits of staff in the subvented sector, we need to balance the aspirations of the staff concerned against competing priorities for improvements to direct services which will benefit the community as a whole. Given the size of staff in the subvented sector, any real improvements in fringe benefits would be very expensive. Any proposal to improve the fringe benefits of subvented sector staff must be seen in its proper resource availability context.

7. In implementing the MISS, for example, we gave full consideration to its financial implications and the affordability of the proposal against our budget constraint. At the time of its introduction, the Scheme was expected to benefit at least 8,500 staff over a ten-year period, or 53% of those meeting the eligibility criteria in 1992. We therefore need to run a quota system. Annual quota has been set having regard to the prevailing market mortgage interest rate and the funds available. As at the end of June 1999, a total of 5 313 staff in the subvented sector have been admitted into the MISS. Recurrent Government expenditure on the Scheme has risen from $7.7 million in 1993-94 (part-year) to a full year requirement of $95.1 million in 1998-99. The cumulative expenditure up to 1998-99 is $352.5 million.

Response to the proposal of the Joint Council on Salary and Fringe Benefits in Subvented Organisations (JCSSO)

8. In their proposal to improve the MISS, JCSSO said that it would not have financial implications. In fact, if the total interest subsidy were to be provided to the recipients in a lump sum as down-payment subsidy, the up-front cash would be very substantial.

9. This arrangement would also depart from the original intention behind the MISS, which is to provide relief towards the monthly mortgage interest payment. Furthermore, this could bring about technical problems in recovering part of the subsidy if any recipient should leave the service prior to completion of 10 additional years' of service.

Ref.: S7/1/71
Finance Bureau
July 1999

1.This excludes staff employed by the Hospital Authority.