TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 104

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years. A public sector of this relative size is clearly now within the economy's capability. If necessary, it could

be lifted a little further without detriment as it will be in 1977-78 when, according to the budget speech, it will rise. to 17.6% up by one thirteenth on 1976-77 when it was 16.4%. (And, incidentally, the acceptable relative size of the public sector is larger on the downswing phase of the trade cycle than on the upswing. When the economy is enjoying strong growth the relative size of the public sector should fall, partly because the growth rate of public expenditure will always tend to lag behind the growth rate of the economy on the upswing and partly because we want to leave room for the public sector to expand relatively to the economy as a whole on the downswing).

(b) Construction of annual budget

12. The annual budget itself is set in the context of revenue and expenditure trends in the current year and the three preceding years and also in the context of a forecast of revenue and expenditure over the

the budget year.

three years following

This is what we call the 3-1-1-3 concept. The budget is then actually constructed having regard to four sets of guideline ratios.

13.

In the first place, we take the view that there should be a certain relationship between the recurrent and capital accounts so that the rate at which our recurrent commitments

I have grow in relation to recurrent revenue is limited. taken the view, in recent years, that recurrent expenditure should absorb no more than 30% of recurrent revenue and that at least 60% of capital expenditure should be financed by the surplus on recurrent account. Furthermore, an upper limit

is set to recurrent expenditure of 70% of total expenditure, but this means that capital expenditure can be more than 30% of total expenditure. This is because, if less than 80%

of recurrent revenue is absorbed by recurrent expenditure, the surplus on recurrent account could finance a large quantum of capital expenditure. Accordingly, separate absolute guideline figures are set for the various components. of the capital account and these are revised periodically.