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The Economy
The government implements these constitutional provisions in its management of public finances by maintaining a low and simple tax regime and exercising fiscal prudence. Hong Kong's Public Finance Ordinance (PFO) stipulates a system for the control and management of Hong Kong's public finances and defines the respective powers and functions of the legislature and the executive. Pursuant to the PFO, the Financial Secretary submits to the Legislative Council an annual set of estimates of revenue and expenditure. The estimates are drawn up in the context of a medium-range forecast which is a fiscal planning tool to ensure that appropriate regard is given to the longer-term trends in the economy.
A government department can only incur expenditure up to the amounts stated in the expenditure estimates and for the purposes approved by the Legislative Council. If during the financial year (which runs from 1 April to 31 March) a department needs to change the expenditure estimates and spend more money, it must obtain the Legislative Council's authorisation.
The government controls its finances through the General Revenue Account (GRA) and various funds established under the PFO. The GRA is the main account for day-to-day departmental expenditure and revenue collection. Funds established under the PFO are the Bond Fund, the Capital Investment Fund, the Capital Works Reserve Fund, the Civil Service Pension Reserve Fund, the Disaster Relief Fund, the Innovation and Technology Fund, the Land Fund, the Loan Fund and the Lotteries Fund. The total revenue and expenditure of the GRA and all these funds except the Bond Fund represent government revenue and government expenditure respectively, and the total balance of the GRA and the funds except the Bond Fund constitutes government fiscal reserves.
Financial Results
For 2013-14, the government recorded a surplus of $21.8 billion, with revenue of $455.3 billion and expenditure of $433.5 billion. Fiscal reserves at the end of March 2014 stood at $755.7 billion. For details of revenue by source and of expenditure by component for 2013-14 and 2014-15 (Revised Estimate) see Appendix 6, Table 6.
Public expenditure comprises government expenditure and expenditure by other public bodies. In 2013-14, public expenditure totalled $457.3 billion, an increase of 14.3 per cent over the previous year, of which some $300.6 billion (or 65.7 per cent) was of a recurrent nature. Table 7 gives an analysis of public expenditure by policy area group and Table 8, the growth rate of public expenditure as compared with the rate of economic growth.
Long Term Fiscal Sustainability
The Working Group on Long-Term Fiscal Planning appointed by the government released its report on the fiscal sustainability of Hong Kong's public finances in March 2014. Based on population projections up to 2041 and prevailing government policies, the working group projected economic growth, government revenue and government expenditure for the coming two to three decades, showing the pressure on public finance of an ageing population and anticipated slower economic growth. The working group recommended resolute and early action to manage Hong Kong's finances in a sustainable manner by promoting economic growth, preserving, stabilising and broadening the revenue base and containing expenditure
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