TNAG-1641-FCO40-2288-Budget-of-Hong-Kong-1987 — Page 91

The Forecasts

Appendix C-Contd.

13 The latest forecasts are summarized in three tables (extracted from the full output of the computer models) and one diagram—

Table 1- Operating statement, being the relationship between recurrent (day to day) revenue and

expenditure.

Table 2-Capital expenditure and financing statement.

Table 3-Consolidated cash flow in each year and the impact on Government's reserves. Diagram 1-Tests of forecasting sensitivity.

14 The tables concentrate on Government's consolidated finances. They provide no details of the boundaries between the various Funds through which, for operational reasons, the Government controls its finances.

15 Some of the main features of these forecasts are:

-a consolidated surplus averaging around $1 billion over the remainder of the forecast period. -within this, 1989-90 shows a small deficit, but only after allowing for a further equity injection of $11 billion into the Mass Transit Railway Corporation. On current projections of the Mass Transit Railway Corporation finances this may not now be needed, but is retained on the grounds of prudence.

-an operating surplus that is sufficient over the forecast period to finance some 70% of capital expenditure, i.e. well over the 50% minimum aimed for.

16 The considerable sensitivity of these forecasts to the performance of the economy will be noted from Diagram 1.

Consolidated Account Expenditure in the Context of the Economy

17 Tables 1 to 3 deal with Government's own expenditure. For control purposes, this is consolidated with the expenditure of other public bodies such as the Urban Council in order to compare the Consolidated Account Expenditure to the total size of the economy.

18 The results of this comparison are set out in one table and one diagram-

Table 4

showing the build up of Consolidated Account Expenditure and its relationship to the size of the economy (GDP).

Diagram 2-presenting this relationship in diagramatic form and in comparison to historic perfor-

mance.

These indicate how the relationship of Consolidated Account Expenditure in relation to GDP is being stabilized at around 16%-17%.

19 A further table (Table 5) is included this year which indicates the relationship between Consolidated Account Expenditure and Public Sector Expenditure. The former has historically been used as a measure for control of Government's finances. Public Sector Expenditure is an economic definition used in the context of national accounts for GDP estimation. It excludes, for instance, government transfers and current expenditure of government "trading" departments. Since the two series of statistics have different components, they may move differently and Table 5 is intended to clarify the extent of this difference in movements.

Comparison of Forecasts to Historic Trends and Earlier Projections

20 Diagram 3 indicates the pattern of expenditure growth allowed for in these forecasts compared with past results since 1975-76. The following points are of note:

recurrent expenditure growth has been successfully stabilized since 1983-84. The forecasts assume a continuation of firm control over recurrent expenditure.

-capital expenditure growth is inevitably much more volatile and was, in fact, negative in 1984-85 and

1985-86. The forecasts assume a return to growth albeit controlled to a narrower range.

-total real expenditure growth has fallen considerably since the late 70's and early 80's and is forecast to be

controlled at around 5% p.a.

21 The changes in base-line forecasts compared with those included in last year's budget are illustrated in Diagram 4. Both expenditure and revenue are higher. Expenditure reflects the boost in capital spending referred to in the Budget Speech. The revenue base is lifted largely as a result of improved economic performance both achieved in 1986 and projected thereafter.

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