Legislating Standard Working Hours will Undermine Hong Kong’s Competitiveness
The Hong Kong General Chamber of Commerce opposes legislating standard working hours, because we believe it will not alleviate the problem of excessively long working hours, and risks lowering the flexibility of the labour market, as well as constraining Hong Kong’s competitiveness and economic development. To boost the economy, the Chamber urges the Government to use the upcoming Budget,to be announced tomorrow, to reduce the profits tax rate and implement a two-tier tax system to ease SMEs’tax burden.
The Chamber’s Representative on the Labour Advisory Board Emil Yu and I, together with representatives from various business sectors, attended a consultation forum organized by the Standard Working Hours Committee recently and expressed opposition to legislating standard working hours.
The issue of long working hours is due to the severe labour shortage, and the solution to that problem is increasing our labour force. According to Government statistics released inFebruary, Hong Kong’s unemployment rate stood at 3.1% in the November 2013 toJanuary 2014quarter, down slightly on the previous quarter, while underemployment also fell to 1.3%. The unemployment rate has been declining gradually for over a decade, and if current trends continue, it will fall below the 3% threshold for the first time since 1997.
We might be heading down that road again, as the number of vacancies have been rapidly increasing for over a decade -- except for a slight change in direction in 2008 due to the financial crisis. To put it in numbers, in December 2002, the number of job vacancies stood at 16,216, according to figures compiled by the Census and Statistics Department. This number had more than doubled to 36,507 by December 2007, and has continued to rise to 78,299 in September 2013 (the latest figures available).
These data clearly show Hong Kong is suffering from a severe labour shortage, and stipulating standard working hours will only make it more difficult for companies to survive. Moreover, overseas experience shows that standard working hours generally forces employers to hire more part-time or casual employees, which will fragment jobs and exacerbate underemployment. We support the policy objectives that standard working hours proponents are trying to achieve, but we do not believe that introducing legislation for standard working hours will solve the issue of long working hours. With Hong Kong’s robust economy and acute labour shortage, legislating standard working hours will stretch our labour market even more thinly, push up wages and increase SMEs’operating costs.
The Government should uphold the free-market economy principles on which Hong Kong has thrived. Rather than standardizing working hours through legislation, employers and employees should draw up contracts based on the demands of work in individual sectors, stipulating job requirements, duties, working hours and arrangements for over-time pay.
Legislation is a blunt instrument. Appropriate regulation can help steer timely adjustments to cope with the changing economic landscape. However, over-regulation will constrain the flexibility of the market to adapt to different economic situations.
When the economy goes south and businesses need to look for ways to cut costs, companies will have little choice but to cut headcount if other means of adjustments are no longer available due to the need to comply with standard hours legislation. The risk of pushing up unemployment becomes much higher and the most vulnerable are the low-skilled and low productivity workers.
On protecting our grassroots workforce, our representative on the Labour Advisory Board Emil Yu explained that since the introduction of the Statutory Minimum Wage, low-income workers’wages are calculated based on the number of hours worked, and their right to overtime pay is protected under the minimum wage law. The impact of standard working hours will have far-reaching consequences for both low-income employees and the entire workforce.
The 300,000-odd SMEs in Hong Kong currently account for more than 98% of local businesses, and they hire about 1.2 million employees. With small companies already struggling to cope with talent loss, increasing costs and cash-flow constraints, standard working hours legislation will deliver a double blow to SMEs.
To ease pressure on SMEs, the Chamber believes the time is right to introduce a very simple two-tiered profits tax structure. We propose immediately reducing the standard profits tax rate to 15% and further reducing the rate imposed on the first HK$2 million of taxable profits to 10%. According to 2011-12 Government data, profits tax charged on the 75,500 companies with taxable profits of less than HK$2 million was HK$5.57 billion, accounting for just 4.7% of total profits tax revenue.
The adjustment will not complicate our simple tax system. Instead, it will reduce SMEs’tax burden and the increased cash flow will allow them to expand their businesses. Moreover, the proposal is unlikely to result in significant revenue loss for the Government, because when SMEs expand their businesses, their profits will also increase and with the growth so will the amount of tax that the Government will collect
Given that SMEs are the backbone of our economy, the Chamber hopes the Financial Secretary’s upcoming Budget will focus on addressing the concerns of the business community, enhancing Hong Kong’s competitiveness and promoting economic growth. This will ensure more resources will be made available to contribute to the well-being of the general public.
CEO of the Hong Kong General Chamber of Commerce