derived from incomes so the budget tends to be more expansionary when growth is slow.
4.
Appendix A shows charts of public expenditure to GDP, fiscal balance, expenditure growth and establishment growth for the period 1978/89 to 1990/91 and forecasts to 1994/95.
The Medium Range Forecast (MRF)
5. In the early 1980s recession in the Hong Kong economy led to
a rapidly deteriorating budgetary position. Expenditure growth was rapid and cash deficits were recorded in 1982/83 and 1983/84.
The 1982/83 concluding budget speech raised the need for a
planning unit to work on models for a budgetary projection over a five year period. Following a preliminary exercise in 1985/86, the Medium Range Forecast was first published in 1986/87 as a planning exercise
exercise attached to the budget. It has remained fundamentally unchanged since 1986/87.
6. The MRF is a four year projection of expenditure and revenue based upon planning assumptions for GDP growth and inflation and detailed assumptions related to public expenditures and revenues. The forecast is judged, and adjusted where necessary, against a
number of budgetary criteria which were introduced in 1986/87
under the principle of 'controlled growth' of the public sector.
7.
or
The criteria are:
a) Trend total expenditure growth should be slightly below
not exceed trend GDP growth. Over the medium term public
expenditure is constrained to be between 15 and 20 per cent of
GDP. Exceptional capital expenditures may push expenditure growth
above trend GDP growth but overall the total expenditure
guideline should be adhered to with allowances for the lumpiness
of major capital expenditures.
b) Maintain overall budget cash surplus/deficit after
financing operations for adequate cash reserves in the long run.
The 1986/87 budget stated more explicitly that the budget surplus should average $1bn in the medium term.
c) Government savings (ie current
current revenue less current
expenditure) to fund a broad target of at least 50% capital
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