ENG-1984 — Page 125

THE ECONOMY

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Several principles are observed in formulating the government's budgetary policy. The first is that the growth rate of public sector expenditure should have regard to the growth rate of the economy, so that the government does not pre-empt resources which would otherwise be used more efficiently by the private sector. The second principle is that the pattern of public sector expenditure should reflect the government's conscious view as to priorities. For example, over the 10-year period 1974-5 to 1984-5, the share of total public sector expenditure taken by social services rose from 39.8 per cent to an estimated 43.4 per cent, reflecting a significant government effort in improving the social well-being of the population. The third principle is that a certain balance should prevail between direct and indirect taxation, and between direct and indirect taxation taken together and all other recurrent revenue, and the tax system should meet certain defined requirements such as simplicity, neutrality and equity. The fourth principle is that ex- penditure and revenue should meet certain guideline ratios, to ensure the financing of the capital account.

Public Expenditure

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Expenditure on the General Revenue Account is usually around 83 to 86 per cent of public sector expenditure taken as a whole, and this account is thus the main instru- ment of budgetary policy. It is estimated expenditure on the General Revenue Account that makes up the draft Estimates of Expenditure which are presented by the Financial Secretary to the Legislative Council when he delivers his annual Budget speech, and it is the total estimated expenditure on the General Revenue Account for which appro- priation is sought in the Appropriation Bill introduced into the Legislative Council at the same time.

The Estimates of Expenditure contain details of the estimated recurrent and capital expenditure of all government departments, including estimated payments to subvented organisations and estimated transfers to the statutory funds. They also provide for the repayment of the public debt.

With only four exceptions, the General Revenue Account has shown a surplus at the end of each year in the past 20 years. The exceptions were 1965-6 when there was a deficit of $137 million, 1974-5 when there was a deficit of $380 million, 1982-3 when there was a deficit of $3,500 million and 1983-4 when there was a deficit of $2,993 million. The accumulated net surpluses on the General Revenue Account form the government's fiscal reserves, and these secure the government's contingent liabilities and ensure that it is able to cope with any short-term tendency for expenditure to exceed revenue.

The Urban Council, operating through the Urban Services Department, draws up its own budget and expenditure priorities. This expenditure is financed mainly from a fixed percentage of rates from property in the urban area and from fees and charges for services provided by the council.

The Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from rents. Where cash flow is inadequate to meet the construction costs of new estates, the authority borrows from the Development Loan Fund on concessionary terms. The authority is provided with land at nil premium, but the value of the land is shown in its balance sheet as a government contribution. Part of the authority's recurrent expenditure is financed from the General Revenue Account for such activities as squatter control and the management of temporary housing and industrial areas. The authority is also responsible for carrying out a new programme of squatter area improvement funded from the Capital Works Reserve Fund.