ENG-1978 — Page 57

FINANCIAL STRUCTURE

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The Urban Council, operating through the Urban Services Department, also is free to draw up its own budget and to determine its own priorities of expenditure within its various spheres of activity. This expenditure is financed mainly through Urban Council rates and from other sources of revenue, such as fees and charges for the services and facilities the council provides.

The Housing Authority is responsible for the provision and management of public housing and its executive arm is the Housing Department. Under the Housing Ordinance, the authority is required to ensure that its income - derived mainly from rent and other sources – is sufficient to meet its recurrent expenditure on the manage- ment of public housing estates. In providing new housing estates under the govern- ment's public housing programme, the authority is provided with land - the value of which is reflected in the authority's balance sheet as a government contribution. Where its cash flow is inadequate to meet construction costs, the authority may borrow from the Development Loan Fund. Loans amounting to $300 million made to the authority for this purpose up to March 31, 1976, have been converted into a govern- ment contribution towards the provision of public housing in Hong Kong.

The Housing Authority is also responsible for squatter control, the clearance of squatters from Crown land required for development, and the development of tem- porary housing areas. The cost of these activities is met in full from general revenue. The authority is the agent of the government in designing, constructing, marketing and managing the flats and commercial facilities under the Home Ownership Scheme; the flats are financed through the Home Ownership Fund, while the commercial facilities are financed from the Development Loan Fund.

Surpluses and Deficits

A small deficit in the government's accounts was returned in the first financial year after World War II. Subsequently with the exception of 1959-60, 1965-6 and 1974-5 when there were deficits of some $45 million, $137 million and $380 million respectively – a series of surpluses, some of them substantial, were accumulated in the years up to and including 1977-8. Such reserves are required to secure the govern- ment's contingent liabilities, to enable seasonal deficits to be met, and to ensure that the government is able to cope with short-lived tendencies for expenditure to exceed revenue or for revenue yields to fall below expectations.

This accumulation of reserves was achieved partially through a strong growth in revenue. Particularly during the earlier years, this was done without appreciable increases in tax rates because of exceptionally rapid increases in population and, consequently, in economic activity. Revenue expanded more than 30 times from $309 million in 1951-2 to $9,534 million in 1977-8. The rate of increase was affected by variations in such factors as the economic situation and inflows of capital, and by the introduction of an appropriations-in-aid system in 1976-7 whereby certain depart- mental receipts, recovered by departments in the process of providing services to the public, were used to offset approved expenditure. The upward trend however has been strong and continuous.

The pace of economic growth gave rise to surpluses from 1969-70 to 1973-4, with the highest surplus of $640 million being achieved in 1971-2. There was a net deficit of $380 million in 1974-5, due largely to increased spending on public works, social