In Mid-May, the EDB NET Admin Team calculates the average change in rental
prices in 'Class C accommodation (70m2 to 99.9m2)' - the middle of five size
categories - from the published data. It then compares that average to the last
time there was a change in SA, the baseline year. Simulated calculations can be
viewed here. If the difference is less than 10% the SA Review concludes and there is no
adjustment to the SA. If the difference is 10%+ then the SA Review enters its next
stage...
Up until 2013, any change in the SA
rate was announced by the EDB to all schools via a direct Circular Memorandum in June, with the SA review
decision also being reported during a meeting with Nesta also in June.
Any adjustment to the rate of Special Allowance is only applied to newly-singed
contracts and to those extending their contract. Mid-contract NETs remain on the
existing rate stated in their contract until signing a new/renewed contract in
the following year.
Impact of Implementation
The rate of change of rental prices determines the frequency of adjustment
of the rate of SA. The SA Mechanism compares current rental values to the
previous time the SA was changed. Whether a change in SA rate occurs in even
or odd years therefore depends on the speed with which rental values are
increasing or decreasing. Given a standard increasing/decreasing rate of
change in rents, over the first year following a change in SA rate it is
unlikely that a 10% change in rental values will occur. Over a two-year
period it is more likely, and over a three year period it is even more
likely etc.
The history
of changes shows that the SA rate changed in 2004, 2005, 2008, 2009,
2011 and 2014 - a mixture of even and odd years.
Taking the example of "odd-year" contracts, for the 2004/5 adjustment from
$13,000 to $10,500, those NETs renewing contracts in 2005 ("Odd-year NETs")
benefited to the amount of +$2,500 per month for one year by not receiving
the decrease NETs renewing in 2004 received. For the 2014/5
adjustment from $16859 to $19081, those NETs renewing contracts in 2015 (the
same Odd-year NETs) lost out to the amount of -$2,222 per month
for one year by not receiving the increase those NETs renewing in 2014
received.
Cumulatively, therefore, Odd-year NETs incurred a total loss of -$278 per
month for one-year, the equivalent of -$3,336 in total over an eleven year period.
SA Definition
Details of the definition of the Special Allowance are
available in the Special
Allowance Section.
Full History of Adjustment Mechanism (Click
Here for History of SA Adjustments Since 1997)
A fixed rate Special Allowance (SA) was
proposed by the EDB and
authorised by the LegCo Finance Committee
on 12 Nov 1997 at the commencement of the NET Scheme in secondary schools.
An 'Adjustment Mechanism for the Special Allowance' was
outlined by the EDB in Nov 2003 and
authorised by the LegCo Panel on Education
on 17 Nov 2003:
(a) suitably adjust the rate of the Special Allowance by taking into
account the cumulative change in the local private housing rental index
since the present Special Allowance rate was set [the baseline]
(b) introduce a mechanism
to adjust the Special Allowance rate annually by applying the yearly
percentage change of the local private housing rental index to the Special
Allowance rate. SEM will make annual adjustments in accordance with the
mechanism in future; and
(c) apply the above new Special Allowance rate to
serving NETs when their contracts are renewed, and to any newly recruited
NETs starting from the 2004/05 school year. The rate is to be adjusted
annually, but the same rate will hold for the duration of the contract
period of two years for any particular NET.
A
10% trigger clause, the use of a different rental index and the transfer of responsibility for the adjustment
decision to the SEM were
proposed to the LegCo Education Panel by the EDB in Oct 20051,
finalised by the EDB in Nov 2005 and
authorised by the LegCo Finance Committee
on 18 Nov 2005:
Monitor rental movements in conjunction with the attrition rates, and
adjust the special allowance when that situation has changed significantly,
say when the fresh-letting rental prices change by 10% or more, taking into
account the rental expenditure pattern, the type and location of
accommodation of typical NETs, average fresh-letting rental prices, the
attrition rate and the affordability of the Government.
(a) a typical accommodation at a size of 70m2
(b) the relevant territory-wide average fresh-letting rental prices from the
"Private Domestic - average rents by Class" surveyed by the Rating and
Valuation Department.
In Aug 2009, in a
LegCo Panel on Education paper2, the EDB clarified the operation
of the baseline for comparative rental prices as referring to the last
adjustment in SA rather than an annual figure:
The average rental prices since the last SA adjustment in 2007 would be
used as the base line for the next SA review.
In 2014,
the EDB stated that Class C accommodation figures are used with reference to
the base year of the previous change in SA rate alongside two other "major
factors":
(i) the average fresh-letting rental prices in 2013 (according to figures
retrieved from the Rating and Valuation Department, an increase ... in Class
C accommodation over that in 2010, based on which the SA was last adjusted),
(ii) the attrition rates of NETs in recent years, and
(iii) the affordability of [sic] the Government
In summary, if the average change in rental prices compared to the last base
year shows a 10% increase, a SA review is triggered during which the EDB
considers that average increase alongside attrition rates and affordability to
determine the final adjustment.
The EDB-calculated change-in-rental-prices data calculation used in this process
are not made public, however simulated calculations can be
viewed here.
The EDB has confirmed (by email, 2 Apr 2015) that the source data is the '1.
Private Domestic - average rents by Class' spreadsheet published on the
Rating and Valuation Department website. This data only
becomes available in mid-May, 5 months after the end of the calendar year, at
which point the SA Adjustment Mechanism review commences.
The SA review
is always retrospective, whilst any associated SA adjustment is applied in the
following year i.e. the 2015 SA review takes place in mid 2015 using 2014 data,
with any SA rate change being applied in the next contract cycle 2015/17 starting in Aug
2015.
1. In
May/June/July 2005, three representations (1,
2,
3) were made by the Nesta
Special Allowance and Gratuity Committee
to LegCo proposing that the adjustment mechanism "should not be based
solely on the CPI, but should take into account the actual expenses that
expatriates in HK face, including the rental index for non-owners and education
fees with further consideration of the recent tax increase in assessable income,
school fees (ESF, private international schools), medical insurance, work/living
conditions, family/children extra-curricular activities fees (school bus;
compulsory swimming lessons, art materials, school camps, computer textbooks,
library sponsorship and class trips; sporting, recreational and entertainment
fees), and increase in Helpers' salaries (necessity for many NETs, NETWiKs have
to employ helpers in order to be free to perform their duties)". The proposal
also included an increased gratuity of 25% and a 5-year long service payment.
2. This new baseline was "agreed
with Nesta"
