THE ECONOMY
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expenditure components for 1986-7 and estimates for 1987-8 are at Appendix 11. An analysis of expenditure by function is at Appendix 13.
Some $12 billion (or 25 per cent) of consolidated account expenditure in 1986–7 was of a capital nature. The operating surplus for the year was sufficient to finance 73 per cent of this capital expenditure. The remainder was financed from capital revenue including revenue from land sales. The principle that at least half of the capital expenditure should be met from the operating surplus was, therefore, adhered to, and it is expected to be maintained in 1987-8.
There was no recourse to borrowing in 1986–7, and the balance of the government's outstanding borrowings at the end of the year was $1.4 billion.
Public Expenditure
The estimated expenditure on the General Revenue Account is set out in the draft Estimates of Expenditure, which are presented by the Financial Secretary to the Legislative Council when he delivers his annual Budget speech. It is the total estimated expenditure on the General Revenue Account for which appropriation is sought in the Appropriation Bill introduced into the Legislative Council at the same time.
The Estimates of Expenditure contain details of the estimated recurrent and capital expenditure of all government departments, including estimated payments to subvented organisations and estimated transfers to the statutory funds. They also provide for the repayment of public debt.
With only four exceptions, the General Revenue Account has shown a surplus of income over expenditure at the end of each year in the past 20 years. The exceptions were 1974-5 when there was a deficit of $380 million, 1982–3 when there was a deficit of $3,500 million, 1983-4 when there was a deficit of $2,993 million, and 1984-5 when there was a deficit of $1,563 million, of which $1,004 million was financed by the issue of Government Bonds. The accumulated net surpluses on the General Revenue Account form the government's fiscal reserves. These secure the government's contingent liabilities and ensure that it is able to cope with any short-term tendency for expenditure to exceed revenue.
The Urban Council and Regional Council, operating through the Urban Services Department and Regional Services Department, draw up their own budget and expenditure priorities. The expenditures of the Urban Council and of the Regional Council are financed mainly from a fixed percentage of the rates from property in the Urban Council area (Hong Kong, Kowloon and New Kowloon) and in the Regional Council area (New Territories). Other income comes from the fees and charges for services provided by the councils.
The Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from rents. Where the cash flow is inadequate to meet the construction costs of new estates, the authority borrows from the Development Loan Fund on concessionary terms. The Housing Authority is provided with land for the construction of rental housing at nil premium, but the value of the land is shown in its balance sheet as a government contribution. Part of the authority's recurrent expenditure is financed from the General Revenue Account for such activities as squatter control and the management of Temporary Housing Areas. The authority is also responsible for carrying out a programme of squatter area improvements funded from the Capital Works Reserve Fund.
Revenue Sources
There is no general tariff on goods entering Hong Kong, but duties are charged on six groups of commodities irrespective of whether they are imported or manufactured locally.