As Hong Kong faces a projected HK$100 billion ($12.85 billion) fiscal deficit for the 2024-25 fiscal year, the special administrative region government is under mounting pressure to reassess public expenditures. The city’s dependence on unpredictable revenue streams, combined with economic challenges, has brought urgent attention to the issue of public sector spending, and discussions around civil service pay have taken center stage.
Several scholars have proposed a temporary pay cut for civil servants to ease fiscal pressures, as their salaries constitute a significant portion of government expenditures. While the proposal could provide short-term relief to strained public coffers, it has sparked intense debate over its broader implications. Critics warn that such pay cuts could harm civil service morale and the quality of public services. Additionally, several lawmakers have highlighted the potential ripple effects on the private sector, as many employers reference civil service pay trends in their annual salary adjustment formulas. Economically, reducing civil servants’ pay risks decreasing the disposable income of millions of workers, which could dampen consumer confidence and hurt GDP growth.
The issue underscores a broader challenge: how to balance fiscal sustainability with the need to maintain a motivated and high-performing public workforce. Beyond economics, the debate delves into governance philosophy and societal values, reflecting the complexity of addressing Hong Kong’s fiscal challenges in ways that are both fair and effective.
Reforming civil service pay or allowances must align with Hong Kong’s legal framework, particularly the Basic Law. Any changes must adhere to Article 100, which guarantees that public servants retain their seniority, pay, and benefits as of June 30, 1997. Pay reductions that do not fall below 1997 levels would not violate this article. While the government retains the right to alter terms of service, courts are unlikely to interpret this right as extending to fundamental terms, such as salary reductions. Based on the 2003 civil service pay adjustment experience, legislation is the only reliable method for achieving lawful pay reductions.
Reforming civil service allowances offers a more targeted and less disruptive alternative to direct pay cuts. Unlike salaries, allowances are less visible and less likely to influence private-sector wages, thereby minimizing ripple effects while addressing fiscal concerns.
Many civil service allowances and subsidies, such as housing benefits tied to family size, have remained largely untouched despite repeated reviews. Although these benefits are considered contractual entitlements, their relevance and equity in today’s socioeconomic environment are increasingly questioned. While private-sector employees have faced wage stagnation, layoffs and reduced benefits in recent years, civil servants continue to enjoy longstanding allowances. This disparity has drawn public scrutiny, particularly during economic downturns.
To maintain a motivated workforce, the government should pair reforms with measures to support civil servants, such as transparent communication, fair performance evaluation systems, and opportunities for career development. A balanced approach that respects their contributions while addressing fiscal challenges will be key to sustaining a high-performing public sector
Housing benefits are among the most significant allowances. In the 2023-24 fiscal year, housing-related benefits cost over HK$6 billion, making this an ideal starting point for fiscal reform. Measures such as eliminating dual benefits under the Non-accountable Cash Allowance, capping benefits based on market conditions, and expanding the construction of departmental quarters in lieu of housing-related cash allowances could achieve substantial savings — potentially in the hundreds of millions of dollars — without a significant impact on civil servants’ morale.
In Singapore, the “clean wage” policy consolidates allowances into base salaries, simplifying pay structures and enhancing transparency. This approach reduces administrative complexity while ensuring compensation remains competitive yet fiscally sustainable. Additionally, Singapore’s flexible wage system adjusts salaries based on both economic performance and individual achievements, striking a balance between accountability and motivation.
The United Kingdom has adopted a performance-based pay model for senior civil servants, tying remuneration to measurable outcomes, such as project delivery and public service improvements. This approach fosters accountability and incentivizes excellence without inflating base salaries. Recently, the UK government introduced a pilot program linking senior civil servants’ pay to performance objectives. By prioritizing measurable results, the UK has created a framework that attracts private-sector talent while maintaining high standards of public service.
Hong Kong could benefit from adopting similar measures, transitioning outdated allowances into performance-driven incentives. By aligning public sector incentives with private-sector practices, the civil service could achieve greater efficiency and equity.
The review of civil service allowances is not merely about saving money; it is also about rebuilding public trust and ensuring that public resources are used effectively. Housing benefits, given their visibility and cost, represent the logical starting point for reforms. In the future, other types of benefits, such as education allowances, should also be reviewed. Allowances like the Overseas and Local Education Allowances remain contentious, and freezing or reducing these rates could yield additional savings. Reforming allowances will require careful planning and consultation to avoid a backlash.
While fiscal reforms are necessary, it is equally important to acknowledge the dedication and contributions of Hong Kong’s civil servants, who play a vital role in maintaining the city’s stability and public services. Any changes to benefits must consider the potential impact on staff morale, talent attraction and retention. Civil servants are justifiably concerned about how reforms might affect their financial security. To maintain a motivated workforce, the government should pair reforms with measures to support civil servants, such as transparent communication, fair performance evaluation systems, and opportunities for career development. A balanced approach that respects their contributions while addressing fiscal challenges will be key to sustaining a high-performing public sector.
The author is a senior lecturer, the Hang Seng University of Hong Kong, and co-chair, the Advocacy and Policy Research Committee, the Hong Kong Institute of Human Resources Management.
The views do not necessarily reflect those of China Daily.
