REVIEW OF PUBLIC EXPENDITURE PLANNING IN HONG KONG
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1. During the 1980s, public expenditure control and planning in Hong Kong has successfully contained expenditure and revenues at a low level relative to GDP. Medium term fiscal planning has been a fairly consistent and reliable guide to the overall stance of budgetary policy. Substantial cash reserves have been built up as a result of balanced budget planning with conservative revenue estimates. However the comfortable fiscal position has come under increased pressure in 1990/91 as economic growth has slowed whilst demands for new public expenditure on infrastructure and services has risen. The 1991/92 to 1994/95 medium range forecast shows both an increased level of expenditure to GDP and a considerable draw down of reserves.
2. This paper sets out our understanding of the current rationale and system of public expenditure and revenue planning in Hong Kong. The effectiveness of the planning system in action is described and related to broader economic developments.
Background
3.
Public sector expenditure in Hong Kong is small, accounting for between 15% and 19% GDP in the 1980s. Fiscal policy has balanced the need to keep the tax burden low for private enterprise whilst providing adequate services
services to meet social needs and to support the private sector. Fiscal policy has also sought to balance the budget over the medium term. Following a string of deficits in the early 1980s, cash surpluses averaging 2.5 per cent GDP have been recorded between 1985/86-1989/90 as a result of rapid economic growth boosting revenues and a reduction in the expenditure to GDP ratio. The consolidated cash surplus fell to near zero during
during the 1990/91 fiscal year. Nonetheless reserves equivalent to about 60 per cent of expenditure in 1991/92 have been built up through these cumulated cash surpluses. With a medium term balanced budget policy the Hong Kong authorities have little discretion to use the budget as a direct tool of demand management. Nonetheless with 60 per cent of tax revenue derived from incomes the budget tends to be