Scientific Game

Pandering to the Masses

Macau’s population is heavily protected from economic realities—and the government seems to like it that way

Monday, 16 January 2012 15:56
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Only around one-third of the registered employed population in Macau is liable to pay income tax—and even then only at a maximum rate of 11%—according to an analysis conducted by Inside Asian Gaming. Workers in the crisis-hit European Union paying in many cases 50 cents on every euro they earn would probably be envious.

The low number of taxpayers in Macau does arguably, however, create a disconnection between formation of public policy in the territory and public engagement in that process. If you’re paying for something directly, you jolly well want your money’s worth and will be diligent in calling to account those spending your money in your name. This lack of accountability is having—and is likely to have in the future—some profound implications on the development of economic and social policy in Macau. That in turn is likely to mean public apathy and political sclerosis in dealing with issues familiar to Macau casino executives and investors, such as timely and coordinated infrastructure development, and skills and training development for local people.

In 2010, the Macau government had a budget surplus of MOP41.88 billion (US$5.24 billion)—a 22% increase year-on-year. During the same period, public spending rose by 14% to MOP79.64 billion. Much of that spending was on infrastructure, but about one tenth of it was on handouts to residents. This largesse reflects in part the expansion of the local casino industry and the tax harvest from it. Nearly 40% of Macau’s annual gaming turnover (as opposed to gross revenue, which is net of tax) goes to the government in gaming tax. The industry grew by 57.5% in gross revenue terms year-on-year during 2010 and 42% in 2011. But the authorities’ largesse also arguably reflects a spectacularly unimaginative, even timid, approach to public policy. The Macau government would rather sedate its own people with cash handouts than lead them in the challenge of moving up the employment value chain.

Macau is not unique in having relatively big government at low or no cost to its citizens. Many oil- and gas-producing emirates in the Middle East levy no or very low income tax on their nationals. But in most of those Gulf states, there are well-developed policies aimed at economic diversification for the day the oil and gas runs out. Economic diversification policies are much talked about in Macau. Attempts are being made to implement some. One prominent example is the new University of Macau campus and technology business zone being built on Hengqin Island in neighbouring mainland China. But there isn’t the same incentive for diversification in Macau—despite the political backing for it from Beijing—as there is in the Gulf. Macau isn’t relying for its public income on an exhaustible supply of fossil fuel. It’s relying on the human fuel of an increasingly affluent Chinese population that wants to gamble and shop.

The chance of the Chinese government doing a U-turn on its relatively open door policy in allowing its citizens to visit Macau doesn’t seem high. But how wise is it for Macau not to have a credible ‘Plan B’ ten years into the gaming liberalisation experiment? Even a cursory reading of Macau history should give the territory’s leaders some pause for thought. Macau was the most important trading port on the Pearl River Delta until it was rapidly overtaken by Hong Kong in the first half of the 19th century. Although it’s extremely unlikely in the short-term (i.e. the next five to ten years) that casino gaming will be legalised anywhere else in mainland China, it’s by no means impossible that it could happen a decade or two on from that. To put things in perspective, Stanley Ho’s Macau casino monopoly ran for just over 50 years. The People’s Republic of China has only been in existence for 62 years. In the life of a community and in public policy terms those are frighteningly short periods of time. It took the Gulf states around 25 years to institute fully some new policies for improving the education of their indigenous population and diversifying their economies. Even if you buy into the ‘inexhaustible demand for gaming and leisure’ thesis of Sheldon Adelson, the Chairman of Las Vegas Sands Corp, there could be many spin off benefits to the casino industry in Macau from economic diversification. One is likely to be an improvement in the skills and educational attainments of local people.

The Macau government’s response to the challenge of economic diversification currently gives little ground for optimism. A local lawmaker recently renewed the debate by calling on the government to open casino dealing jobs to non-locals. This, said the legislator, was in order to help locals escape the glass ceiling of a well-paid job on leaving school that then offers little career progression. The reply of Macau’s Chief Executive Chui Sai On was not encouraging. He was quoted as saying such a policy would “not happen on my watch”. It seems that in the minds of the local leaders, fear of social unrest through too much change too quickly—and possible rebuke from head office in Beijing; as befell Macau’s first CE, Edmund Ho—trumps innovation and energy in social and economic policy.

From a political standpoint, there is a powerful argument for keeping Macau’s tax base small. Working on the well-tried principle expounded during America’s Revolutionary War against Britain—‘No taxation without representation’—the danger of adding more people to the taxable classes is that they may well start to clamour for more say in how their city is run. That could mean one-person-one-vote. There’s nothing in Macau’s Basic Law agreed between Portugal and China prior to the 1999 handover (unlike the Basic Law in Hong Kong) that explicitly lists universal suffrage as a political aspiration.

Now for the number crunching on the income tax base in Macau. There were 345,000 people registered as working in the September to November 2011 period, according to data published by the territory’s Statistics and Census Service (known as DSEC, by its Portuguese initials).

According to a guidance note issued by financial services company PricewaterhouseCoopers (PwC) in June last year, the threshold for paying personal income tax in Macau on personal income earned during 2011 was MOP144,000 (US$18,000). In Hong Kong during the same period, the non-taxable personal allowance for a single person without dependents (the threshold above which income tax is charged on employees as opposed to self-employed people) was HK$108,000 (US$13,900), according to information from Hong Kong’s Inland Revenue Department. The Hong Kong government has to rely on income tax more heavily than Macau, but Hong Kong does use land sales to balance or boost its budget. In 2010-11, Hong Kong’s consolidated budget surplus was estimated at HK$60 billion (US$7.73 billion), according to PwC.

In Macau, a person would need to be earning a minimum of MOP12,000 gross per month to qualify for payment of personal income tax. In Hong Kong, a single person with no dependents only needs to be earning HK$9,000 gross per month.

In the third quarter of 2011 in Macau, only four groups of workers out of nine occupation groups listed had median monthly wages (excluding overtime and bonuses) at or above the MOP12,000 level (see Table 1 below). They were legislators and civil servants, professionals, technicians and clerks (the latter group including casino dealers).  Confusingly, DSEC dispenses with those categories when analysing raw numbers in employment and uses only broadly approximate ones (see Table 2 below). However, in 3Q 2011 those equivalent groups accounted for 115,200 of the 345,000 registered employed population—only 33% of the total, according to DSEC. In other words, only around a third of Macau’s workers are liable to pay income tax. This number is subject to some error plus or minus, given that it’s based on median wages rather than an analysis of all salary bands in all industries, and not completely equivalent occupation groups.

 

In Hong Kong in the second quarter of 2011 (the most recent figures available), only one occupation group—professional and business services—out of eight occupations listed had median wages falling below the HK$9,000 per month threshold for salaries tax (see Table 3 below).

The relatively high threshold for tax in Macau and the numbers falling below that threshold appears to be both an indicator of Macau’s relatively low level of social development (with a larger number—as a percentage of the population—of lightly-educated people doing low-skilled, low-paid work compared to neighbouring Hong Kong, as per Table 4 below) and also an indicator of the Macau government’s paternalism. Macau seeks to protect low-paid people by subsidising the social status quo via its gaming industry income rather than encouraging social development through education and personal aspiration. When it does intervene, it tends to focus only on wages rather than personal development.

In November, Macau’s Chief Executive urged employers to raise employee wages to allow them to catch up with Macau’s economic development. Mr Chui also announced during his annual policy address that month that permanent and nonpermanent residents will receive a cash handouts of MOP7,200 and MOP4,000, respectively, this year. In addition, the government will inject MOP6,000 into each central savings system (a non-mandatory retirement scheme for Macau residents) account. When other extended benefits for the elderly and other special interest groups are included, it will take the government’s spending on welfare payments to MOP8.56 billion (US$1.07 billion) during 2012, according to figures discussed in the territory’s Legislative Assembly late last year.

The population of Macau in the third quarter of 2011 was 560,100, according to data from the Statistics and Census Service. Of these, 91,241 were nonresident workers ineligible for handouts or welfare payments. That leaves 469,000 residents—perhaps as many as 75% of them non-taxpayers—eligible for government payments to the tune of around MOP18,250 per head during 2012.

Susana Chou, a former Macau lawmaker who was president of the Legislative Assembly from the time of Macau’s handover by Portugal in 1999, until she retired in 2009, suggests that government subsidies for the city’s inhabitants is no substitute for coherent policy on social development. On her personal blog, she stated just before Christmas: “[There are problems] Especially with the legal lag [law infrastructure], ever-expanding civil service, judicial and administrative mismanagement, poor performance issues, accountability issues, Macau’s economic structure, and the [threat to] Macau SMEs’ survival.”

Those issues can’t necessarily be solved by throwing money at them. One day the real bill—the price of social and educational stagnation—could land squarely on Macau’s doormat; unless policy changes are made now. Then the rumblings of discontent seen during Edmund Ho’s administration could look like a walk in the park.

 

Jam Today

SJM announces pay rises and bonuses for staff in 2012

Sociedade de Jogos de Macau (SJM), the casino operating company founded by Stanley Ho, says all its Macau employees will get a pay rise of between 5% and 10% in 2012. The company didn’t say what the wage increase means in cash terms. SJM’s net profit in 2010 was US$456.6 million, according to a filing with the Hong Kong Stock Exchange.

The precise number of people entitled to receive the payments is also unclear. Twenty casinos in Macau operate under an SJM gaming licence, but only four—The Lisboa, Grand Lisboa, Jai Alai and Oceanus—are directly managed by the company with 100% SJM staff. The remainder are run by third parties but with varying degrees of involvement by SJM management and staff. The total number employed in SJM-licensed casinos in Macau is thought to be around 13,000 people.

SJM also announced last month that employees will receive a bonus for 2011. Those on the lowest pay scales—MOP10,000 (US$1,247) per month or below—will be entitled to receive 150% of their normal monthly salary. Next year’s salary increases will also be weighted so that those on the lowest levels will receive the biggest percentage increase within the 5% to 10% increase on offer.

The company’s announcement follows signs of labour unrest at SJM in recent months, with unions publicly calling on SJM management to improve pay. Traditionally, SJM has been known for offering lower basic salaries than the other Macau operators, but generally better perks and working conditions. Dr Ho has in the past personally awarded five- or even six-figure sums to long-standing employees in lieu of pension when they retire. But in the increasingly corporatised Macau labour market, and with SJM now part publicly held with outside shareholders to answer to, such paternalistic practices appear to be on the wane. In addition, a rising cost of living in Macau alongside the rising standard of living means many younger employees may not have the patience to eat bread today on the promise of jam tomorrow.

CPI Ainsworth 2017-AUG

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