113. Head 176 – Subventions: Miscellaneous. Subhead 443 - Hong Kong Tourist Association. The Hong Kong Tourist Association was established in 1957 under the Hong Kong Tourist Association Ordinance with the general objective of propting tourism in Hong Kong. Under the Ordinance, the Association is required annually to submit to the Legve Council an audited statement of its accounts and a report on its activities. However, unlike the incorporating ordinances of similar organizations financed largely by public funds, the Ordinance makes no requirement for the Association's budget to be approved by the Government. Nevertheless from its establishment until 1966 the Association submitted its budget to the Government for the purpose of assessing the Association's subvention needs and the subvention was approved by the Legislative Council on the basis of the budget submitted. In 1966 it was decided that the expenses of the Association should be partly financed by those in the tourist industry who benefited from the Association's activities and a Hotel Accommodation Tax was introduced in the form of a 2% levy on all accommodation charges. Although there is no requirement in the law that the proceeds from the tax should be paid to the Association, since its introduction the subvention, which is the Association's main source of income, has been calculated on a formula linked to the yield from the Hotel Accommodation Tax, without reference to the Association's budget. The Hotel Accommodation Tax is currently levied at a rate of 5% and in 1985-86 the subvention paid to the Association was $117 million.
114. The formula for determining the Association's subvention originally consisted of an amount equivalent to the yield from the 2% tax plus a fixed grant of $3 million from the general revenue plus an additional sum from the general revenue calculated on a matching dollar-for-dollar basis where the tax yield exceeded $1.35 million. In 1972 the last element was substituted by the equivalent of a 2% tax yield. In 1975 the Hotel Accommodation Tax was increased to 3% and in 1976 to 4% whilst the contribution from the general revenue remained at $3 million plus the equivalent of a 2% tax yield. In 1977 the Government had second thoughts about having granted the Hong Kong Tourist Association the large increases in its subvention based on the formula adopted and, in drawing attention to the fact that the expenditure of the Association had almost doubled over the previous two years from $16 million in 1975–76 to $31 million in 1977–78, the Financial Secretary expressed his concern as to whether expansion of such an order was prudent or sustainable without giving rise to inefficiency and wastage. Consequently in 1978 it was decided that the growth rate of the Association should be restrained by a phased elimination of the $3 million fixed grant from the subvention formula. However by 1981-82 the subvention paid to the Association had reached almost $63 million and in my report for the year ended 31 March 1982 I expressed the opinion that there was a need for the Government to reconsider the level of subvention payable.
115. In November 1982 the Secretary for Economic Services advised the Public Accounts Committee (paragraph 5.17 of the Committee's Fifth Report) that the Government was reconsidering the level of subvention, and in March 1983 the Government Minute stated that new subvention arrangements had been introduced to gradually withdraw the contribution from the general revenue with a view to holding the Association's expenditure in real terms to the 1982-83 level, while maintaining the overall effectiveness of the Association's operations. The new arrangements involved an increase in the rate of the Hotel Accommodation Tax to 5%, a reduction in the contribution from the general revenue to the equivalent of a tax yield of 1%, and a further elimination of this contribution over four years by a one-quarter percentage point reduction each year.
116. During the period 1982-83 to 1985-86 the amount of subvention paid to the Association under the new arrangements increased in real terms by about 23% and, as the Association has for long adopted a policy of budgeting to expend all its income, except for maintaining a reserve equivalent to approximately 11 months' expenditure, its expenditure in real terms increased by almost 30%. The new arrangements therefore failed to achieve the Government's objective of holding the Association's expenditure in real terms to the 1982-83 level and for as long as the present arrangements continue, the Association's budget will be based on expected income rather than an assessment of actual expenditure requirements based on need. I have noted also in this connection that the amount of subvention paid to the Association over the years 1982-83 to 1985-86 was in excess of the guidelines for the containment of public expenditure in other sectors, which are that over a period of years the growth rate in real terms should not exceed the growth rate of the gross domestic product and, where the budgetary situation so dictates, the growth rate should be less. It is for consideration therefore whether the Hong Kong Tourist Association should be required to submit for the Government's approval its proposed programme of activities and annual estimates of income and expenditure. Such requirements are included in the incorporating ordinances of the Hong Kong Trade Development Council, the Hong Kong Productivity Council and the Consumer Council, all of which are financed largely by public funds.
117. The question of whether the Government should impose budgetary control over the Association was previously researched by the Secretary for Economic Services in 1981 following an audit recommendation that the Hong Kong Tourist Association Ordinance be amended to provide for the Association's budget to be approved by the Government. He found that in 1957 when the Hong Kong Tourist Association Ordinance was enacted, the subvention to the Association at $120,000 was comparatively small and was not expected to be a perpetual grant. Furthermore, as it was assessed on a discretionary grant basis, the Association's annual budget would be subjected to close scrutiny as a matter of course. He believed that this explained why the Hong Kong Tourist Association Ordinance contained no requirement for the submission of an annual budget to the Government for approval. Subsequently, with the introduction of the Hotel Accommodation Tax in 1966, the examination of the annual budget was dispensed with as the subvention to the Association was thereafter based on a fixed formula linked to the yield from the tax. He also made the point that his representative on the Association's Board of Management saw the proposed budget each year and approved it as a board member, although he acknowledged that this was hardly the same as formal Government scrutiny and approval.
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