The Economy I 61
Management of Public Finances
The principles underlying the Government's management of public finance are set out in the Basic Law: to keep expenditure within the limits of revenues in drawing up the budget, to strive to achieve a fiscal balance, to avoid deficits and to keep the budget commensurate with the growth rate of its gross domestic product. The Budget presented by the Financial Secretary to the legislature each year is developed against the background of a medium-range forecast to ensure that full regard is given to the longer-term trends of the economy.
Public Expenditure
Public expenditure is taken to include government expenditure from the General Revenue Account and the Government's statutory funds excluding Capital Investment Fund, plus expenditure by the government trading funds and the Housing Authority. Government grants and subventions to institutions in the private or quasi-private sectors are included, but not spending by organisations in which the Government has only an equity stake, such as the Airport Authority and the MTR Corporation Limited. Similarly, advances and equity investments by the Capital Investment Fund as well as repayment of government bonds and notes are excluded as they do not reflect the actual consumption of resources by the Government.
The Housing Authority, operating through the Housing Department, is financially autonomous. The Government provides the Housing Authority with capital and land on concessionary terms to finance the provision of public housing rental flats to those in need.
A trading fund is an accounting entity enabling a department to provide services on a commercial or quasi-commercial basis. Unlike a vote-funded department, a department operating on a trading fund is allowed to retain revenue generated to meet its expenditure and finance future expansion.
Financial Results
The Government's consolidated account recorded a surplus of $58.6 billion in 2006-07. The accumulated balance at end-March 2007 stood at $369.3 billion. This forms the Government's fiscal reserves and is available to meet any calls on its contingent liabilities. It also enables Government to cope with any short-term fluctuations in expenditure relative to revenue.
Total government revenue in 2006-07 amounted to $288 billion and spending $229.4 billion. For details of revenue by source and of expenditure by component for 2006-07 and 2007-08 (Revised Estimate) see Appendix 6, Table 6.
Public expenditure in 2006-07 totalled $241.7 billion. There was a drop of 1.3 per cent in nominal terms or 1.9 per cent in real terms over the previous year. Some $38.5 billion, or 15.9 per cent of the public expenditure in 2006-07, was of a non-recurrent nature. Table 7 gives an analysis of expenditure by policy area group