For discussion
FCR(98-99)9
on 3 April 1998

ITEM FOR FINANCE COMMITTEE

HEAD 40 - EDUCATION DEPARTMENT
Subhead 326 Kindergarten Subsidy Scheme

Members are invited to approve -

  1. a schedule of revised rates of subsidy on the basis of a class grant to eligible kindergartens under the Kindergarten Subsidy Scheme; and

  2. delegation to the Secretary for the Treasury the authority to approve revisions to the rate of subsidy for the 2000/01 school year and annually thereafter, as indicated in the schedule of revised rates, to take account of inflation in accordance with the movement of the Consumer Price Index (A).

PROBLEM

We need to improve the level of subsidy under the Kindergarten Subsidy Scheme (KSS) to encourage kindergartens (KGs) to employ more qualified kindergarten teachers (QKTs). We also need to revise the disbursement of the subsidy to help to minimise fluctuations in the level of assistance provided to kindergartens.

PROPOSAL

2. The Director of Education (D of E), with the support of the Secretary for Education and Manpower, proposes -

  1. a schedule of revised rates of subsidy on the basis of a class grant to eligible KGs under the KSS as at Enclosure 1; and

  2. delegation to the Secretary for the Treasury the authority to approve revisions to the rate of subsidy for the 2000/01 school year and annually thereafter, as indicated in the schedule of revised rates, to take account of inflation in accordance with the movement of the Consumer Price Index (A) (CPI(A)).

JUSTIFICATION

3. Government considers that all KGs should employ at least 60% QKTs in order to enhance the uality of KG education. To achieve this target, D of E has, as a matter of policy, required all KGs to employ at least 40% QKTs by September 1997, at least 50% by September 1999 and at least 60% by September 2000. That is to say, all KGs will be staffed by at least 60% QKTs by the 2000/01 school year. We introduced the KSS in September 1995 to assist KGs in employing more QKTs without having to increase substantially their fees. The Education Department (ED) has recently reviewed the KSS with a view to further improving the Scheme.

4. The review has indicated that there is scope for improving the existing arrangements. Under the present Scheme, subsidy is disbursed on a per pupil per annum (pppa) basis. The level of subsidy received by individual KGs is therefore dependent on the size of enrolment for that year. As enrolment figures may fluctuate from year to year but not to the extent of affecting the number of classes in the KG and hence the staffing levels, KG operators found that a level of subsidy on a pppa basis has caused financial uncertainty to them. Furthermore, under the present Scheme, all KGs receive the same standard rate of subsidy on a pppa basis irrespective of the number of QKTs they employ. This does not provide sufficient incentive for KGs to employ more QKTs than that required under the ED policy.

Subsidy on a Class Grant basis

5. The objective of the KSS is to assist KGs in employing QKTs and the level of teaching staff is more related to the number of classes in operation than the actual enrolment. As the subsidy under the existing scheme is based on the actual number of pupils enrolled, experience in the past two years indicates that some KGs are concerned about fluctuations of the subsidies received from year to year against a steady increase in operating costs. In particular, KGs operating in areas where the population is ageing or in remote or low income areas would encounter financial difficulties when their enrolment dropped.

6. To overcome this problem, we propose to change the rate of subsidy from per pupil per annum to per class per annum. We further propose that, in determining the revised rates of subsidy on a per class basis, we will work on the basis of a class size of 30, having regard to the overall average enrolment of 26 pupils per class in KGs which have already joined the KSS. D of E will monitor the operation of the improved scheme on the ground to ensure that resources are put to good use.

Incentive for employing more QKTs

7. To encourage KGs to employ more QKTs at an earlier date than required in progressing to achieve the 60% target in the 2000/01 school year, D of E proposes that for the period between the 1998/99 and 2000/01 school years, the subsidy should be provided at two rates, namely, a basic rate for KGs employing the minimum percentage of QKTs required by ED, and an enhanced rate for KGs employing a higher percentage of QKTs (in respect of the 2000/01 school year, KGs already meeting the 60% requirement in the preceding year), this being set at least ten percentage points higher than that required by ED. Under the proposal, the enhanced rate for the 1998/99 school year for KGs employing ten percentage points more than the required 40% proportion of QKTs will become the basic rate for the 1999/2000 school year as all KGs are required to meet the 50% requirement. Likewise, the enhanced rate for the 1999/2000 school year will in effect be the basic rate for the 2000/01 school year. In the proposed schedule of rates, we will maintain the differential in the level of subsidy available to KGs which are moving towards the 60% target in the 2000/01 school year at a faster pace throughout the period from 1998/99 to 2000/01. From the 2001/02 school year onwards, we will revert to a single rate of subsidy for all KGs.

8. Taking account of the proposals above, we set out for Members' approval a schedule of revised rates for the KSS at Enclosure 1.

9. As indicated in the schedule of proposed rates, we will need to make inflation adjustments to the enhanced rate in the 2000/01 school year for those KGs which have met the 60% requirement earlier than others. From 2001/02 onwards, when a single rate is adopted, we will also need to adjust the rate for inflation annually in order to maintain the real value of the subsidy. We propose that Members delegate to the Secretary for the Treasury the authority to approve revisions to the rate of subsidy for the 2000/01 school year and annually thereafter, as indicated in the proposed schedule of rates, to take account of inflation in accordance with the movement of the CPI(A).

Future review

10. D of E intends to conduct another review in the 2000/01 school year to assess the effectiveness of the KSS when the revised arrangements have been in operation for two years and the target requirement of 60% QKTs has been achieved.

FINANCIAL IMPLICATIONS

11. Assuming that 65% of all non-profit making KGs will join the KSS, D of E estimates that the cost for operating the Scheme, based on the proposed improvements in this paper, will increase from $52 million in 1997-98 to $79 million in 1998-99, rising to $149 million (in money-of-the-day prices) in 2001-02, calculated as follows -

School year

1998/1999

1999/2000

2000/2001

2001/2002

Projected number of classes in KGs eligible for basic rate

246

288

397

3 372

Projected number of classes in KGs eligible for enhanced rate

2 834

2 911

2 911

N/A

Basic rate (per class per annum)

$29,400

$34,700

$41,000

)

)$46,1001

Enhanced rate (per class per annum)

$34,700

$41,000

$43,5001

))

Financial year

1998-1999

1999-2000

2000-2001

2001-2002

Estimated total
expenditure(2)

$79
million

$118 million

$136 million

$149 million

We have included sufficient provision in the 1998-99 Estimates under Head 40 Education Department Subhead 326 Kindergarten Subsidy Scheme to fund the proposal.

BACKGROUND INFORMATION

12. We introduced the KSS in September 1995 to improve the quality of kindergarten education through the provision of a direct subsidy to eligible KGs. The Scheme assists KGs in meeting the proportion of QKTs required by Government without having to increase their fees substantially. KGs joining KSS must meet the requirement on the percentage of QKTs, pay teachers according to the recommended salary scale, and charge school fees not exceeding that set by Government. The rate of subsidy is $880 pppa for the 1997/98 school year. The eligibility criteria are set out at Enclosure 2.

13. As at September 1997, there were 735 KGs, of which 447 (60%) were non-profit making. The total enrolment was 177 462 pupils, representing 75.5% of children aged three to five in Hong Kong. The number of KGs joining KSS currently stands at 253. D of E has closely monitored the effectiveness of the Scheme and conducted a review in the 1997/98 school year with a view to introducing further improvements to it.


Education and Manpower Bureau
March 1998

(1) These two rates are indicative, derived by applying an assumed CPI(A) increase of 5.9%. For KGs already reaching the 60% target before the 2000/01 school year, the enhanced rate they receive in 2000/01 will be $41,000 adjusted for inflation, that is, $43,500 based on 5.9% assumed inflation increase. For the 2001/02 school year a single rate worked out by adjusting the preceding year's higher rate of $43,500 for inflation will apply. This will produce a rate of $46,100 based on an assumed inflation increase of 5.9%.

(2) Payments are made to KGs in two equal payments in each school year. As the second payment falls within the next financial year, the estimated expenditure for each financial year is the sum of the second payment of the preceding school year and the first payment of the current school year.

Enclosure 1 to FCR(98-99)9

Kindergarten Subsidy Scheme (KSS)
Proposed rates of subsidy

School year

Minimum requirement of qualified kindergarten teachers (QKTs) employed

Basic rate (1)per class per annum

Enhanced rate (2)per class per annum

1998/99

40%

$29,400

$34,700

1999/2000

50%

$34,700

$41,000

2000/01

60%

$41,000

X = $41,000 plus CPI(A) adjustment (3)

2001/02 and thereafter

60%

Y = X plus CPI(A) adjustment (4)

Note : If the present KSS is to remain unchanged, kindergartens will receive a subsidy on the basis of a per pupil per annum rate of $980 or an equivalent class grant of $29,400 per annum in the 1998/99 school year. We propose to adopt this as the basic rate for 1998/99 and introduce an enhanced rate at $34,700, which represents an 18% increase. Likewise, the enhanced class grant for the 1999/2000 school year is 18% higher than the basic rate for that year.

(1) Basic rate applies to eligible kindergartens employing QKTs at the prevailing percentage requirement stipulated by Education Department.

(2) Enhanced rate applies to eligible kindergartens employing a higher percentage of QKTs, being at least ten percentage points higher than that stipulated by Education Department.

(3) The rate is $41,000 at 1999/2000 prices and subject to adjustment in accordance with the movement of CPI(A). Assuming a CPI(A) of 5.9%, the rate for the 2000/01 school year will be $43,500.

(4) The rate is $41,000 at 1999/2000 prices and subject to adjustment in accordance with the movement of CPI(A). Assuming a CPI(A) of 5.9% each year, the rate for the 2001/02 school year will be $46,100.

Enclosure 2 to FCR(98-99)9

Eligibility Criteria for the Kindergarten Subsidy Scheme (KSS)

Kindergartens (KGs) joining the KSS are required to fulfil the following conditions -

  1. operate on a non-profit making basis (note)

  2. employ at least 40% qualified kindergarten teachers;

  3. charge school fees at not higher than $13,200 a year in the 1996/97 school year (equivalent to 1.5 times of the weighted averaged school fee of non-profit making KGs in that year); and

  4. pay teachers according to the salary scales recommended by Government.

(note) In the three-year transitional period (the 1995/96 to 1997/98 school years) profit making KGs may apply to join the KSS provided that they undertake to convert to non-profit making status. From the 1998/99 school year onwards, only non-profit making KGs are eligible to apply to join the KSS.