XN000022-1996-02-14 — Page 32

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Reference date for expenditure guideline projections

Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for the Treasury Kwong Ki-chi, in the Legislative Council today (Wednesday):

Question:

It is mentioned in the "Practitioner's Guide - Management of Public Finances" published in March 1995 by the Finance Branch that the reference date for expenditure guideline projections is 1990-91 and that the expenditure ceiling for 1990-91 has been used to determine the expenditure guideline projections for subsequent years. Will the Government inform this Council:

(a) of the criteria adopted for choosing 1990-91 as the "reference date" for expenditure guideline projections; and

(b) whether a new reference date for the 1996-97 expenditure guideline projection will be adopted; if so, how many expenditure guideline projections will be covered by this new reference date?

Reply:

The government has for many years followed the fundamental principle that government expenditure, over time, should be planned to grow at a rate no faster than the forecast trend growth rate of the economy measured in terms of the Gross Domestic Product. This broad working hypothesis was reinforced with the introduction of the Medium Range Forecast in 1986-87. From that time, the additional resources which could be made available each year to fund new/improved government services was controlled by reference to the forecast trend growth rate of GDP. However, at that time there were no formal overall expenditure guidelines.

In 1990, given the substantial infrastructural investment planned over a number of years, particularly in connection with the Airport Core Programme, and the need to assure ourselves that this investment could be accommodated without breaching the principle of controlling expenditure referred to above, the Financial Secretary adopted a fixed reference point for the purpose of planning future government expenditure. This fixed reference point was based on projected spending in 1990-91 and was used to determine the expenditure guidelines for 1991-92. These guidelines were published, for the first time, in the printed version of the Budget speech in March 1992.