FINANCIAL STRUCTURE
43
The principal reason for these results, which appear so favour- able, was that during the earlier years exceptionally rapid increases in population generated economic activity which raised the yield from taxation and other sources of revenue without appreciable increases in the rates of tax. Revenue expanded from $292 million in 1950-1 to $3,071 million in 1970-1. The rate of increase was affected by variations in such factors as the economic situation and inflows of capital, but the upward trend has been strong and con- tinuous. In expenditure there was inevitably a time-lag before the Government could develop the public and social services necessary for an increasing population and made possible by economic growth itself. However, as these services were developed at a gradually accelerated rate, the margin between recurrent expendi- ture and recurrent revenue tended to narrow. For example, in 1952-3 recurrent expenditure absorbed only 54 per cent of the recurrent revenue, but by 1959-60 the figure had risen to 82 per cent. Consequently, in that year the surplus of revenue over expendi- ture could no longer finance all the capital expenditure and an overall deficit of $45 million occurred. Subsequent budgets forecast further and in some cases substantial deficits, but the actual results suggest that the economic strength and resilience of Hong Kong was underestimated, particularly earlier on, for 1965-6 is the only year in which another deficit has been recorded.
While the export trade remained buoyant, towards the end of 1964-5 the property market turned dull and this, to a degree, affected other sectors. The deficit of 1965-6 reflected this temporary set back.
Revenue and expenditure for the years 1969-70 and 1970–1 together with the estimates for the financial year 1971-2 are detailed and compared in Appendices 11 and 12. There was a return to surplus in 1966-7. The change was assisted by a small increase in taxation, but a more important factor was a falling-off in capital works expenditure as certain major works, particularly the Plover Cove reservoir scheme and certain major land development, neared completion. There was also a fall in construction costs due largely to reduced private development.
The picture changed again in 1968 when, partly as an aftermath of success in surmounting the political difficulties of 1967, partly under the influence of world inflation on demand for Hong Kong exports, another period of unusually rapid growth began. This caused the growth of revenues at existing tax rates once again to out-distance the substantial rate of growth of expenditure on special