ENG-1972 — Page 59

FINANCIAL STRUCTURE

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but

these services were developed at a gradually accelerated rate, the margin between recurrent expenditure and recurrent revenue tended to narrow. For example, in 1952-3 recurrent expenditure absorbed only 57 per cent of the recurrent revenue, by 1959-60 the figure had risen to 82 per cent. Consequently, in that year the surplus of the recurrent account 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 temporary setback.

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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 the Plover Cove Reservoir scheme and some major land developments, neared completion. There was also a fall in construction costs due largely to reduced private development.

The picture changed again in 1968 when, partly as an aftermath of success in surmounting the political difficulties of 1967, partly under the influence of world inflation on the demand for Hong Kong exports, another period of unusually rapid growth began. This caused the growth of revenues at existing tax rates once again to out-distance the substantial rate of growth of expenditure on special services and development. A budget forecast of a deficit of $13 million in 1968-9 became an actual surplus of $208 million. The pace of economic growth continued to accelerate in the following years with surpluses rising from $448 million in 1969-70 to $640 million in 1971-2. Revenue and expenditure for the years 1970-1 and 1971-2 together with the estimates for 1972-3 are detailed and compared in Appendices 5 and 6.

For 1972-3 the budget estimate of revenue is $3,704 million which is $163 million more than actual revenue in 1971-2. The estimate of expenditure is $3,657 million which is $756 million more than actual expenditure in 1971-2. A small surplus of $47 million was estimated, but the cost of the Civil Service is expected to rise sharply and further commitments on medical and education subventions, in consequence of the recommendations of the 1971 Salaries Commission, will bring this figure down. On the other hand, the increased activities of the property and stock markets, as reflected in the collection of land sales and stamp duties, could bring the actual revenue for the year over the budgeted level.

At March 31, 1972, net available public financial assets were $2,916 million, while the public debt as of March 31, 1972, was $57.5 million or the equivalent of approximately $14 per head of population. Indebtedness decreased by $3 million during the year, due mainly to the repayment of £200,000 of the United Kingdom's interest-free loan of £3 million for the development of Hong Kong International Airport. This loan is repayable by 15 annual instalments; the first repayment was made on October 1, 1961. The Rehabilitation Loan, of which $50 million was raised