ENG-1974 — Page 54

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Financial Structure

WITH the ultimate authority resting with the Legislative Council, Hong Kong has almost complete autonomy in financial affairs. However, approval by the Secretary of State for Foreign and Commonwealth Affairs is required before decisions are made on certain major matters such as currency and banking.

Hong Kong is financially self-supporting, apart from the cost of its external defence, to which it makes a substantial contribution. Under an agreement covering the five years from April 1971 to March 1976, Hong Kong is making a contribution in kind and in cash amounting to £40 million. About £28 million of this contribution will be spent in Hong Kong on capital works and on the maintenance of buildings which will revert to Hong Kong if no longer required by the Armed Forces. The work is undertaken by the Public Works Department on behalf of the British Department of the Environment.

The Urban Council, operating through the Urban Services Department, is free to draw up its own budget and to determine its own priorities of expenditure within its various spheres of activity. These are mainly financed from the yield from Urban Council rates and partly from other sources of revenue related, largely through fees and charges, to the service and facilities the council provides.

The Housing Authority, which is responsible for the development and manage- ment of all public housing, is financed mainly from loans from the Development Loan Fund and income from rents. It is also allocated land at substantially less than its market value. Its executive arm is the Housing Department. The authority is responsible for squatter control, clearing squatters from sites required for develop- ment, and developing licensed areas. The cost of these activities and the deficit arising from the management of former resettlement estates are financed from general

revenue.

A small deficit was returned in the first financial year after World War II. Since then, with the exception of 1959–60 and 1965–6, when there were deficits of some $45 million and $137 million respectively, a series of surpluses, some of them substantial, have been accumulated. The accumulation of these surpluses in the varying economic conditions which Hong Kong has had to face is a considerable achievement, partic- ularly since it has taken place after charging annually against current revenue all capital expenditure other than a comparatively small amount financed by borrowing. These annual capital spendings have been increasing in recent years and in 1973-4 they totalled $1,700 million.

The principal reason for these results, which appear so favourable, was that during the earlier years exceptionally rapid increases in population generated economic