by mid-1997 to the maximum extent possible, and to plan our finances with the firm objective that the future Government of the Special Administrative Region inherits fiscal reserves of at least $25 billion. This latter commitment is entirely compatible with our traditional financial policy and budget planning. We have always followed sound monetary and fiscal policies, and sought to ensure adequate reserves. The guidelines I have adopted represent sound sense and are those which Hong Kong must follow in the future, as in the past.
* 39.
In applying my guidelines, I have of course looked beyond the immediate requirements for the coming year. We prepare a Medium Range Forecast which normally covers the current financial year, the estimate year and three years beyond that. The latest Medium Range Forecast goes further and includes 1996-97. I judged it sensible this year to extend the forecast period by one year in order to show the position up to the last full year before the change of sovereignty. I am publishing the details of this forecast in Appendix A to this Speech.
40.
This forecasting procedure is a vital and effective tool of financial management. It involves a three stage process:
41.
First, we forecast the trend rate of economic growth. This gives us the maximum safe ceiling for the growth in public expenditure.
Second, we forecast the basic spending pressures: the level of expenditure growth necessary to maintain existing services, to meet expected increases in demand, to cover the recurrent implications of new capital projects due to come on stream in the forecast period, and to cover major new commitments made in previous years.
Third, the gap between the expenditure ceiling and the expenditure forecast defines the scope for funding new commitments, provided that sufficient funds are available.
In planning my Budget this year, I estimated that the trend rate of growth would be 5% for the forecast period. After examining our expenditure objectives, priorities and scope for economies, I have concluded, as I shall explain later, that we will be able both to pay for the Airport Core Programme and to fund real increases in both recurrent programmes and in other capital expenditure next year. I make this prediction with confidence, given the sound policies and techniques which are a consistent feature of our public finances. I express my thanks to my colleagues in the Government Secretariat and departments for achieving this result. And I look forward to their continued co- operation in the future.
42. In this context, I should like to reassure this Council on our ability to manage the Airport Core Programme. I think the case for this massive investment in Hong Kong's future is well understood and widely accepted. The Government's share of the costs of the capital works will absorb about 25% of the total capital expenditure during the period up to 1997. It is a major commitment, but three quarters of our planned capital expenditure over the next six years will be devoted to projects other than the Airport Core Programme. I hope this puts the programme in its proper perspective.
11