THE ECONOMY
Among the various components of the CPI(A), the prices of alcoholic drinks and tobacco, transport and vehicles, services, and fuel and light recorded faster increases than the others. For these four components, the rates of increase were 17 per cent, 13 per cent, 13 per cent and 11 per cent respectively in 1990 over 1989. Taken together, they accounted for 32 per cent of the overall increase in the CPI(A).
Economic Policy and Public Finances
Economic Policy
Economic policy in Hong Kong is to a large extent dictated, and constrained, by the special circumstances of the economy. Owing to its small and open nature, the economy is vulnerable to external factors, and government actions designed to offset unfavour- able external influences are of limited effectiveness. Moreover, the government considers that, except where social considerations are overriding, the allocation of resources in the economy is best left to market forces with minimal government intervention in the private sector.
This basically free-enterprise, market-disciplined system has contributed to Hong Kong's economic success. The relatively simple tax structure with low tax rates by world standards provides a good incentive for workers to work and for entrepreneurs to invest. Both workers and entrepreneurs are highly motivated. The primary role of the government is to provide the necessary infrastructure and a sound legal and administrative framework conducive to economic growth and prosperity.
Structure of Government Accounts
In accounting terms, the public sector is taken to include the Hong Kong Government itself, the Housing Authority and Urban and Regional Councils. Government grants and subventions to institutions in the private or quasi-public sectors are included but expenditure by organisations in which the government has only equity, such as the Mass Transit Railway and Kowloon-Canton Railway Corporations, is not included.
The government controls its finances through a series of fund accounts. The General Revenue Account is the main account for day-to-day departmental expenditure and revenue collection. Four other funds exist mainly to finance capital investment and expenditure and to make loans. They are the Capital Works Reserve Fund, Capital Investment Fund, Loan Fund and Lotteries Fund. The Capital Investment Fund and the Loan Fund were established on April 1, 1990, for purposes of financing government's capital investments and loan schemes and, in this connection, assuming the functions of the Development Loan Fund, Mass Transit Fund and Student Loan Fund which were closed on the same date in accordance with the Resolutions passed by the Legislative Council under Section 29 of the Public Finance Ordinance.
The Capital Works Reserve Fund finances the Public Works Programme, land acquisitions, capital subventions, and major systems and equipment items. On May 27, 1985, when the Sino-British Joint Declaration came into effect, the fund was restructured to enable the premium income obtained from land transactions to be accounted for in accordance with the arrangements in Annex III to the Joint Declaration. The income of the fund is derived mainly from premia and transfers from the General Revenue Account.
The Capital Investment Fund is used to finance the government's capital investments in public bodies which are not part of the government structure itself, such as equity injection
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