ENG-1993 — Page 83

THE ECONOMY

Government grants and subventions to institutions in the private or quasi-private sectors are included, but expenditure by organisations in which the government has only equity (such as the Mass Transit Railway Corporation and Kowloon-Canton Railway Corporation), is excluded.

The government controls its finances through a series of fund accounts. The General Revenue Account is the main account for day-to-day departmental expenditure and revenue collection. Four other funds exist mainly to finance capital investment and expenditure, and government loans. They are the Capital Works Reserve Fund, Capital Investment Fund, Loan Fund and Lotteries Fund.

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The Capital Works Reserve Fund finances the public works programme, land acquisi- tions, capital subventions, major systems and equipment items and computerisation. On May 27, 1985, when the Sino-British Joint Declaration on the Question of Hong Kong came into effect, the fund was restructured to enable the premium income obtained from land transactions to be accounted for in accordance with the arrangements in Annex III to the Joint Declaration. The income of the fund is derived mainly from land premia and appropriations from the General Revenue Account.

The Capital Investment Fund finances the government's capital investments in public bodies, such as equity injection in the Mass Transit Railway Corporation, capital invest- ments in the Hong Kong Housing Authority and advances to the Provisional Airport Authority. Its income is derived mainly from dividends and interest on investments and appropriations from the General Revenue Account.

The Loan Fund finances government loan schemes such as housing loans and student loans. Its income is mainly derived from loan repayments, interest on loans and appropria- tions from the General Revenue Account.

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The Lotteries Fund finances social welfare services through grants and loans. Its regular source of income is derived mainly from the sharing of the proceeds of Mark Six lotteries.

Management of the Budget

The government manages its finances against the background of a rolling five-year, medium-range forecast of expenditure and revenue. This models the consolidated financial position of the General Revenue Account and of all the funds except the Lotteries Fund.

The most important principle underlying the government's management of public expenditure is that the growth rate of public expenditure should, over a period, be close to that of the gross domestic product.

The budget presented by the Financial Secretary to the Legislative Council each year is developed against the background of the medium-range forecast, to ensure that full regard is given to these principles and to longer-term trends in the economy.

Public Expenditure

Public expenditure in 1992-93 was $123.5 billion. The government itself accounted for $105 billion, excluding equity injections in the Mass Transit Railway Corporation, the Hong Kong Housing Authority, the Provisional Airport Authority and other bodies. The growth rate over the preceding year was 13.9 per cent in nominal terms or 3.7 per cent in real terms. Some $31.1 billion or 25.2 per cent of the public expenditure in 1992-93 was of a capital nature. An analysis of expenditure by function is at Appendix 8.

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