1979 — Page 108

Page 108 of 136

182

HONG KONG URBAN COUNCIL

of my senior colleagues, I must put in a plea for unity within the Council. Honest differences of opinion lead to progress. Petty bickering, antagonism based on personal prejudices lead to nowhere and give the public a distorted image of the Council. Dissension is not only time consuming, but self-defeating.

Let us accentuate the positive—much has been accomplished since autonomy in 1973, and much remains to be done. Let us move forward with a singleness of purpose, let us serve the people of Hong Kong to the best of our ability.

Mr. Chairman, I have much pleasure in supporting the motion before Council.

DR. KIM Y. S. CHAM (in English):—Mr. Chairman, if the present trend of revenue and expenditure continues, the Council will be confronted with increasing financial problems in the 1980's. Both rising costs and the expansion of our services will be adding pressure to our total cost structure. Compared with 1973 when the Council gained its financial autonomy, budgeted expenditure has grown by 241%, up from $226 million to $771 million. The budgeted expenditure figures include capital expenditure of less than $1 million in 1973 and this accounts for $148 million in the budget of 1980. The growth in budgeted recurrent expenditure in 1980 is about 151%, from $225 million in 1973 to $566 million. At the same time, budgeted revenue has grown only by 111%, from $267 million to $560 million, compared to a GDP growth of 62% in the same period.

Because of the high labour content and rising construction costs, the Council has been suffering from what is known as 'adverse relative price effect', when the overall prices of the goods and services purchased by the Council rise at a faster rate than the costs in the rest of the economy. What is alarming is the growth in size of our expenditure, together with a widening gap of budgeted revenue and expenditure. In 1973, the budget represented a surplus of 15% on revenue. Today, the gap is a deficit of 36% on budgeted revenue. Notwithstanding the fact that the estimated rate revenue may be conservative, such a widening gap will result in budget deficits when capital expenditure catches up.

Nowadays, it is popular for politicians to push for increased government involvement and expansion of activities. When the inevitable time comes to consider revenue, it is always popular to oppose increases in taxation. This dilemma can be attributed to the conventional budgetary process. In the case of the Urban Council, the desirability of new activities is first considered by functional select committees, before they go to the Finance Committee for approval. By then, it is difficult for the Finance Committee to challenge the desirability of the proposed activity and it is equally difficult for the Finance Committee to reject competing proposals from different functional select committees. Hence, the restriction of expansion under the existing structure proves difficult. Moreover, raising revenue by way of fees and charges is left at the initiative of the individual functional select committee. The emerging deficit arising from this budgetary process is then presented to the Council as a whole. At which time, the Council has no alternative but to raise revenue to meet the increase in expenditure.

Inherent in such a budgeting system is a concept of meeting expenditure by raising revenue. It is high time to consider reversing this concept by restricting expenditure to revenue. Even in the event that expenditure needs to be increased, the increased expenditure must be identified with the increased level of activities and the functional select committee responsible for it. Most important of all, the public must be given a chance to choose either by rejecting the service and not having to pay for it, or accepting the service and the payment which goes together with it. A system must be devised to accommodate this choice by the public at large.

The two sources of revenue for the Council are rates and secondary sources of fees and charges. It is possible to match the sources and uses of funds for some of our functional select committees. For some select committees, the Council may not wish to subsidize its activities. In these cases, people can consume the service only by paying the required prices and the supply of such services is financed by revenue derived from the sale of the service. This concept of 'user-pricing' should be applicable to our market, abattoir and administration of licences. For other activities, like swimming pools, cultural and recreational activities, our subsidies must be clearly identified and related to a share of rates.

Let me point out that the existing statement of revenue and expenditure reflects only the accounts in a conventional accounting manner but it does not reveal the share of individual activities subsidized by the rate-payers' money. Following the concept of matching sources and uses of funds, I embark on an attempt to determine the extent of subsidies to our functional activities in our next year's budget. Because of the crudeness of available data, I can only arrive at estimates after making a few assumptions to apportion some sub-heads of accounts as well as excluding capital expenditure. As I intend to use my estimates as a basis to illustrate this system of budgeting, these estimates can be refined at a later date after the principle is accepted.

The result of my analysis is revealing. Deducting secondary revenue from budgeted expenditure of various Urban Council functions, the rate-payers' dollar is divided up as follows:—52% on cleansing and environmental hygiene, 12% on cultural services, 10% on parks and gardens, 10% on street traders, 5% on museums, 4% on libraries, another 4% on swimming pools and beaches, with the remaining 3% spent on other recreation and amenities facilities. With such a basis, the Council can consider whether this distribution of rate is appropriate. If not, an alternative of rate subsidies can be designed for both Council members and the public to see.

HONG KONG URBAN COUNCIL

183

Page 108 of 136