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significant extent in the fiscal year 1990–91, when the projected deficit will be in the order of $449 million, with the consequent reduction in our reserves to $440 million which is equivalent to only 62 weeks' expenditure at present day prices.
This turnaround is not unexpected insofar as when the new funding package was successfully concluded with the Government in 1985–86 it was known the Council would, for a period of 3 to 4 years, be able to maintain a balanced budget.
Turning to the current financial year, the Council will spend a record sum of $562 million on capital projects to upgrade and increase the number of our facilities, venues and services. Many projects (big and small) each of which make a positive contribution to the quality of life of Hong Kong's people have come on stream or are about to do so in the coming year. The Hong Kong Cultural Centre; the $45 million replenishment of Repulse Bay Beach; the new Museum of Science and Technology, costing in the order of $325 million overall. The Hong Kong Park, another joint venture with the Royal Hong Kong Jockey Club who will contribute $170 million, of the $390 million overall costs.
The current 5-year capital works project envisages an overall commitment on capital projects in the region of $2.8 billion for the period 1989-90 to 1993–94.
I would draw Members' attention to the fact that when these projects come on stream, there is the inevitable additional financial requirement for recurrent operational expenditure. Furthermore, whilst it is intended that relativity be maintained between our primary source of revenue, the rates, and secondary sources, it is obvious that the projected increase in revenue of 2% for the year 1990-91 is insufficient in comparison with the projected growth in expenditure of around 14%.
While the Council is making every effort to exercise all reasonable economies, we do not intend to reduce the level and standard of services to the 3.6 million urban dwellers of Hong Kong. I intend, therefore, to initiate discussions with the Government in the coming year to ensure that the Council's financial stability can be maintained over the coming years.
I now invite Mr. BERNACCHI, Chairman of the Council's Finance Select Committee, to second the motion.
MR. B. A. BERNACCHI, CHAIRMAN OF THE FINANCE SELECT COMMITTEE seconded the motion (in English):- Mr. Chairman, the budget placed before Members to-day shows that the Council has projected or is projecting the amounts of revenue and expenditure in the year 1990-91 at an almost record level. This in itself is not surprising as it has always been this Council's aim to provide a high standard of services and facilities commensurate with the aspirations and expectations of the urban area rate-payer.
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The Council's budgeting philosophy, always having due regard to the availability of financial resources, consists of three elements. First, the financial resources required to maintain at least the existing standard of services and activities; secondly the resources required to increase and/or improve this existing standard by the introduction of new and/or improved services or activities in accordance with approved policies and thirdly the introduction of new or additional services and activities arising from the completion of capital projects from the cultural centre to new markets, and the upgrading of standards generally to meet the rising public needs.
For the current fiscal year we are projecting a deficit of $83 million which is only $26 million more than was originally projected this time last year. This moderate increase is attributable to the projected increases in expenditure of $65 million offset by increases in revenue of $39 million. The Council's reserves will be reduced to $889 million as at 31 March 1990 which is equivalent to about 13 weeks' expenditure. This is still in line with the Council's aim to have in reserve about 3 months' expenditure.
Nevertheless, turning to next year the expenditure is projected to rise to $3.48 billion, an increase of $416 million or 14%, whilst the revenue to $3.03 billion, an increase of only $50 million or 2%, as the Chairman has said, over the current fiscal year. The Council's reserves will then be reduced to about 6½ weeks' expenditure which is unsatisfactory. Whilst this deterioration in our finances is not unexpected it is a cause for some concern, particularly in view of the number of major new capital projects which have or are about to come on stream and which therefore have got too far now to be halted, even if the Council wanted to do so! All these new facilities require a great deal of extra staff, equipment, maintenance, utility services etc. Inevitably we will have to increase our expenditure, probably in the same ratio as at present.
Turning to some specifics, we are now anticipating that approximately 56% of our budget will be spent on staff costs, 20% on operational expenditure, 15% on capital works and 9% on special expenditure. It is quite obvious from the foregoing that, being a labour-intensive organisation, we must continue to exercise strict control over staffing levels and tight financial control, therefore it is essential to improved management and operational efficiency. We aim also to increase our contracting out of services, our value for money exercises, and more cost-effective methods for dealing with the Council's major areas of activity, especially the introduction of modern management techniques and technology which I hope will lead to savings in personal emoluments.
As regards revenue, relativity is being maintained between our primary source i.e. rates and secondary sources approximately in the order of 77% to 23% respectively. The projected secondary sources of revenue amounting to $707 million are derived primarily from: (1) admission and hire charges $190 million, (2) rentals $166 million, (3) fees and charges $132 million, (4) licences and permits $89 million and (5) bank interest $75 million, the last is anticipated to be affected as our reserves get less!
Before concluding I would stress to Members there is always a limit to what we can accomplish due to financial and/or physical constraints. Therefore,
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