ENG-1965 — Page 54

FINANCIAL STRUCTURE

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The principal reason for these results, which appear so favourable, is that during the past 14 years exceptionally rapid increases in population have generated internal economic activity which has raised the yield of taxation and other sources of revenue sub- stantially although there has been no appreciable increase in their rates. Annual revenue expanded in those 14 years from $291.7 million to $1,518.3 million. The rate of increase was affected by variations in such factors as the economic situation and inflows of capital, but the upward trend was continuous. In expenditure there was inevitably a time-lag before the government could develop the public and social services necessary for the increased population. However, as these services were developed and the rate of their development has gradually accelerated--the margin between re- current expenditure and recurrent revenue tended to narrow. For example, in 1952-3 recurrent expenditure absorbed only 50 per cent of the recurrent revenue, but by 1959-60 the figure had risen to 82 per cent with the consequence that in that year the surplus of revenue over expenditure could no longer finance all the capital expenditure. An overall deficit of $45.3 million thus occurred. Subsequent budgets anticipated further and substantial deficits but statistics now available for the years 1960-1 to 1964-5 suggest that the economic strength and resilience of the Colony was under- estimated. At any rate during these years an upsurge in recurrent revenue, arising mainly from the very active trading conditions prevailing in the Colony, changed the anticipated financial picture. Recurrent expenditure continued at approximately the levels expected but absorbed a progressively smaller proportion of the recurrent revenue until by 1963-4 the proportion was down to 65 per cent. A reverse in this trend which occurred in 1964–5 raised the proportion to 67 per cent and this increase is likely to persist in the current year due to slightly less active trading conditions. At the same time capital expenditure, though rising substantially, was lower than originally forecast while capital revenue showed a marked increase up to 1963-4 due mainly to land sales. A setback, thought to be temporary, has since occurred in land sales revenue.

From the comparative statement in Appendix IX it will be seen that a deficit of $60 million is estimated for 1965-6. This indicates that it is anticipated that revenue will not be able to finance all the capital expenditure arising from the government's very heavy