THE ECONOMY
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 size and open nature, the economy is vulnerable to external factors, and government actions designed to offset unfavourable external influences are of limited effectiveness. Moreover, the government considers that, except where social considerations are over-riding, the allocation of resources in the economy is best left to market forces with minimal government inter- vention in the private sector.
This basically free-enterprise, market-disciplined system has continued to contribute to Hong Kong's economic success. A relatively simple tax structure with low tax rates provides 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-private 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 Works Reserve Fund finances the Public Works Programme, land acquisitions, capital subventions, and major systems and equipment items and computerisation. 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 land premia and appropriations from the General Revenue Account.
The Capital Investment Fund is used to finance the government's capital investments in public bodies, such as equity injection in the Mass Transit Railway Corporation, capital investment in the Hong Kong Housing Authority and advances to the Provisional Airport Authority. Its income is derived mainly from interest and dividends on investments, disposal of investments, repayments of loans, and appropriations from the General Revenue Account.
The Loan Fund is used to finance schemes of government loans such as student loans and housing loans. Transfers are made from the General Revenue Account to enable the fund to meet its commitments. The other main sources of income are interest and dividends on loans and investments and loan repayments.
The Lotteries Fund is used to finance development of social welfare services through loans and grants. Its regular source of income is derived mainly from the sharing of the proceeds of Mark Six lotteries.
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