The Major Problems Of Expenditure Accounting Essay

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Expenditure has two major problems: one is the social welfare may keep increase and may be a burden to the system. One is some budget use it in unsuitable way, like the low efficiency between department and department.

Financial Burden cause by Social Welfare

Hong Kong is not a welfare state, but the situation need that the government to put more budget to social welfare. In Hong Kong, we have medical services, education, public housings, social allowances, societal services and so on. That's why the government state the sentence like this:

"Hong Kong is not a welfare state but the community cares deeply about its state of welfare." [1] 

But the situation like population problems, economic environment will affect the demand of the social welfare.

Population Problems

Nowadays, Hong Kong Government needs to face the popular problem which is called popular aging. Popular aging means that there are more adult retire to become elder in the society. In Hong Kong, there is much welfare for the elder. However, it is a problem on our public financial system due to the fact that our government needs to look after the elder people. The government needs to support the elder on health problem and retirement protection when the population aging is occurring in Hong Kong.

Health problem on aging

When elder becomes older and older, they will have more and more health problems such as Alzheimer's disease, Benign Prostatic Hyperplasia, BPH, DDM, Degenerative arthritis, heart disease, high blood pressure. Some diseases are danger to the elder's life such as heart disease. Some disease may cause to other disease such as DDM and high blood pressure. If the elder need to keep health, they need to take the medicines every day. In fact, the costs of medicines are increasing due to the inflation. An elder cannot afford it because most of them are retired such that they don't have much more income; therefore, they need to go to public clinic to obtain a cheaper medical support which is supporting by government .Hence, there are much more medicines required by those old men and the medical expenditure will increase when a man become elder.

Retirement protection

Nowadays, our government needs to give money based on retirement subsidies. The subsidies promoted in 1973. There are $625 on normal old age allowance per month and $705 higher old age allowance per month. There is a means test on a normal old age allowance. Now, both of the old age allowances are $1090 per month. In 2010-11, 693,758 elders have the allowance on old age allowance. It shows that government spends much more on elders; however, if the population of Hong Kong keeps on aging, it is a burden on our public financial system if the government keeps on the retirement protection.

On the other hand, there is much voice on cancelling the means test of the normal old age allowance in this year. If the means test is cancelled, more elders can obtain the normal old age allowance. The expenditure of social welfare will increase. During the time passes, the burden on our public financial system will increase if the means test is cancelled.

Economic Environment

Why the economic environment will cause the increase of demand of social welfare? It is because the environment may affect the employer will or will not to employ the new staff or dismiss the old employee. On the recent months, the environment is not very good because of the European Sovereign Debt Crisis that started from Greece and influence on nearly whole Europe. In the government said the effects of the crisis may be influence to the global economy if the debts may default or exit from the Eurozone [2] , just like what we faced in the Financial Tsunami in 2008 in America, the company winding-up and cause the global economy being more worse. But how can affect to Hong Kong? According to latest presentation of Hong Kong Economics (2012) [3] , it stated that the Euro is the world largest economy, if it being worse, it may affect the whole economy, like Mainland China, and Hong Kong also becomes decline slightly, the real GDP growth per year will be around 1-3% estimated by the government [4] . But how can it link to the demand of social welfare? Since the aging problem will cause the old age allowance to give more, the medical also need to take more part to care of the elderly. But the worse economic environment will cause many problems, like the deficits, unemployment, and prudent investment. At that moment, people may want to have much more better life during the crisis. So the demand of social welfare will be increase. Figure 1 shows that the number of cases of CSSA scheme increased sharply from fiscal year 2001-2004, that is the time of Dot-com bubble (科網股泡沫) and outbreak of SARS. Those time the economic environment not very good and many people unemployed or other things affected by the crisis. And the increase of the cases of CSSA was in fiscal year 2008-2009, that is the time of winding-up of Lehman Brothers Corporations, it cause the global economy be more worse, especially in the United State. The effect towards Hong Kong was in first quarter of 2009, that time the economy become worse, but the level may not look like in the before crisis. The figure shows that when it in financial crisis or something affects the economic environment, the people may will to use more social welfare.

Figure 1 Number of cases of the CSSA Scheme from fiscal year 2001-2012 [5] 

So that two kinds of problem may cause the large demand of using the welfare. But we can look back for the government policies or Financial Budget. We still can see the government may not have a long-term planning to help the needy. Like what's the problem in Education and Social Welfare part.

Education

In Education, basically include primary, secondary school, and such kind of tertiary education. In the Financial Budget 2012-13, this part may take around 60 billion, is the 23% of the estimated budget [6] , but most of that are subsidies. The subsidies used for the small size teaching on primary school, the 3-3-4 education institution reform on secondary school, and the financial back up for students.

Social Welfare

In social welfare, include the allowances, and other welfare expenditure [7] . Allowances include CSSA scheme for underprivileged people and SSA scheme for elderly and disabilities, this part already used about 30 billion, which means it used about 11% of the budget [8] . Other welfare expenditure include the societal services and other subsidies apart from CSSA and SSA, it include around 15 billion and 6% of budget [9] . Basically, the budget of the social welfare almost is the subsidies like the allowance, pensions for retirement.

To summarize, social welfare is need for every countries or cities, even in Hong Kong. But some of the situation if no any clear solutions to reduce, it may be the next crisis of the public finance system.

Operating Expenditure increase by the low efficiency bureaucratic system

There are many departments in Hong Kong Government; however, the departments work inefficiently because the work is repeated on some of the departments. Hence, the unnecessary expenditure increase cause the department does not work effective. There are 2 kinds of inefficient reasons which are unclear work distribution on department and branch such as Labour and Welfare Bureau, Social Welfare Department and Food and Health Bureau (Food Branch) and (Health Branch)

Reform

For Population Problem

To solve the financial problem of the popular aging, government should encourage the elders to have immigration to other countries. They will not use local medical support if they have any illness. The medical expenditure will decrease.

On the other hand, government should keep on having the means test of the normal old age allowance. Most elder who have Mandatory Provident Fund Schemes (MPF) will not access the normal age allowance's means test. Then fewer elders can have the normal age allowance, and the welfare expenditure will decrease.

Non-contributed to be contributed expenditure

In the past, the Hong Kong government, even in colonial government or SAR government have given a lot of social welfare to the citizens. But nowadays the hongkongers may think that we also can have contributed to their social welfare. In the past, we have tax to collect and put it to the necessarily parts. Now, the government may think that the expenditure maybe too harsh to operate the government, so that we need to contributed to the social welfare by ourselves.

MPF and Retirement Protection

We also have a contributed fund that to help for the people who retirement, that is MPF (Mandatory Provident Fund), but almost the citizens argue that the MPF may not earn more money, even less, that may cause the city urged the government to release the retirement protection. But the detailed of the protection scheme, that's mean how the scheme operate, the employee and employer whether need to pay or not, the government need to pay for the account holders or not, may not have a consensus.

Education Fund and Medical Fund

These two kinds of fund also is a kind of contributed expenditure too, but it may concerned by the citizens to pay too much for the contributed account. In Hong Kong, they may want to pay for a fund that simple and include sort of things, and mostly cheap.

Singapore's Example

The contributed account includes two: Normal account and Medical account. The saving interest of two accounts is controlled by the national bank. And the employer, employee and the government will have to pay some for the account. In 2004, the portion of paying salary between employer and employee is 17%:23%, that's mean the payment by the employer and employee is 40% [10] . But something that differ from Hong Kong is the Singaporeans can take a part of reserve to buy housing, invest and pay for the educational and medical use since they set a line to stop take out too much and for using after the retirement.

The system of Hong Kong and Singapore is quite similar, but Singapore has more flexibility to let them use the money of their account. Hong Kong can try to learn from this.

Macau's Example

Macau also has the contributed account too, that's the Central Provident Fund, and it started at 15th October, 2012 [11] . Before this, it has Central Saving System [12] . The account is similar to Hong Kong, but the Macau government may substitute to the account that can help the holders to have better life. But differ from Singapore, they cannot take out the money until 65 years old, except for the approval that to prove you have or have not disabilities.

Possible Reform

In our view, we may think that we can try to have a contributed account that to help people for different kinds of social welfare.

The account need to have three kinds of component to pay for: employer, employee and the government (if in need). The payment may differ from the MPF, since the percentage of pay for the account is 10% per month, but we may let the 40-64 years old people who worked can let them to pay less and save more for the life use, and the employer may increase the portion to fit the 10% per month.

This kind of scheme may distribute from different kinds of age group:

Age Group

% of salary of employee pay for1

% of employer pay for by the employee's salary1

$2 of the government pay for1

0-18*

-

-

$1,000

19-39

(Worked)

5%

5%

--

(Not Worked)

-

-

$500

40-49

(Worked)

5%

5%

-

(Not Worked)

-

-

$1,000

50-59

(Worked)

4%

6%

-

(Not Worked)

-

-

$1,500

60-64

(Worked)

3%

7%

-

(Not Worked)

-

-

$2,000

65 or more^

-

-

-

Assume this type of people may not have work skills.

^ This type of people can take out the money from their account

1 By monthly,

2 For the children, adolescence, and the non-workers

Table 1 Contributed Account Payment for different age group (Idealized)

In the contributed account, it similar to the MPF, but also differ from the MPF. The account mainly is a saving account, but if the account holders agree, the fund holders can take a part of their money to invest, but only 10% of their account. Also, we can learn from the Singapore, which is the accounts holders can take out some money out of their account for their emergency use, but set a line to avoid take too much money in their account, it may set to 60% of the latest balance, because we may think that some of the account may not have too much money there, also we not like Singapore to pay for 40%, we still have to set a line that can let people use after age 65. If they take already over the line, the bank or the authority may send a letter to say that the account will not take action to let holders take money out because the balance over the take-out line.

The contributed account have one per people only, two accounts if people willing to take part to invest, even workers or non-workers, they can have different substitution than the employer-employee one, like to give some money to them, the way like Macau, but is to help the non-worker and the 50-64 year-old workers only.

The strength of the new account is can help some necessarily people they need to use, also the government can do as a supporter to support some necessarily people and can protect people to avoid the problem of MPF, also the account can help to have a sense to save money to have better life, even more better.

However, it also has some technical weaknesses, like the interest cannot set actively, because the interest rate needs to follow by the US's interest rate because of the link exchange rate system. That's why we think that the account needs to set the line in 60%. Also, if you want to have investment on the account, as we think before, we cannot take more than 10% of the account to do investment, but also the problem, you may need to organise one more account to do investment, if put together, it may have some troubles occur. That may affect the credibility of the account. Also, the government need to use more expenditure to do this, because if you willing to use the social welfare, the government may need to pay more for the welfare. So it may have some troubles like the deficits.

To sum up, we may think that this plan may not be a very prefect plan, but can reduce the problem of the recent scheme. We try to balance the demand of the retirement protection scheme and other kinds of contributed expenditure; we think that one saving account can help people to remember the account very well.

Improvement of bureaucratic system

The way to avoid the inefficient bureaucratic system is reforming the bureaucratic system. Government need to cut the unnecessary department and combine the similar department into a department. Cut the unnecessary man power is a kind of reforming. If the number of the departments and each department's expenditure decrease, it is effective on balancing the expenditure.

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