ENG-1970 — Page 53

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FINANCIAL STRUCTURE

other than a comparatively small amount financed by borrowing. These annual capital spendings have been as high as $735 million; in 1969-70 they totalled nearly $372 million.

The principal reason for these results, which appear so favourable, was that during the earlier years exceptionally rapid increases in population generated internal economic activity which raised the yield from taxation and other sources of revenue without appreci- able increases in the rates of tax. Revenue expanded from $292 million in 1950-1 to $2,481 million in 1969–70. The rate of increase was affected by variations in such factors as the economic situation and inflows of capital, but the upward trend has been strong and continuous. In expenditure there was inevitably a time-lag before Government could develop the public and social services necessary for an increasing population and made possible by economic growth itself. However, as these services were developed at a gradually accelerated rate, the margin between recurrent expendi- ture and recurrent revenue tended to narrow. For example, in 1952-3 recurrent expenditure absorbed only 54 per cent of the recurrent revenue, but by 1959-60 the figure had risen to 82 per cent. Consequently, in that year the surplus of revenue over ex- penditure could no longer finance all the capital expenditure and an overall deficit of $45 million occurred. Subsequent budgets forecast further and in some cases substantial deficits, but the actual results suggest that the economic strength and resilience of Hong Kong was underestimated, particularly earlier on, for 1965-6 is the only year in which another deficit has been recorded.

While the export trade remained buoyant, towards the end of 1964-5 the property market turned dull and this, to a degree, affected other sectors. The deficit of 1965-6 reflected this tem- porary set back.

Revenue and expenditure for the years 1968-9 and 1969-70 together with the estimates for this financial year (i.e. 1970-1) are detailed and compared in Appendices 6 and 7. There was a return to surplus in 1966-7. The change was assisted by a small increase in taxation but a more important factor was a falling-off in capital works expenditure as certain major works, particularly