ENG-1993 — Page 84

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THE ECONOMY

Public expenditure has been around 15 to 17 per cent of the gross domestic product since 1987-88. It is estimated that this will rise to about 19 per cent in 1993-94. The growth rate of public expenditure is compared with the rate of economic growth at Appendix 9.

Total government revenue in 1992-93 came to $132.8 billion. The consolidated cash surplus was $22 billion, including net borrowings of $2.5 billion. Details of revenue by source and of expenditure by component for 1992-93 and 1993-94 (estimated) are at Appendix 10.

The draft estimates of expenditure on the General Revenue Account are presented by the Financial Secretary to the Legislative Council when he delivers his annual budget speech. In the Appropriation Bill introduced into the council at the same time, the administration seeks appropriation of the total estimated expenditure on the General Revenue Account.

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

With the exception of only five years (1974-75, 1982-83, 1983-84, 1984-85 and 1990-91), the General Revenue Account has shown a surplus of income over expenditure at the end of each year for the past 20 years. The accumulated net surpluses on the General _Revenue Account and on the Funds, together, form the government's fiscal reserves. These are available to meet any calls on the government's contingent liabilities and ensure that it is able to cope with any short-term fluctuations in expenditure relative to revenue.

The Urban Council and Regional Council, which operate through the Urban Services Department and Regional Services Department, respectively, are financially autonomous. They draw up their own budgets and expenditure priorities. The expenditures of the two councils are financed mainly from a fixed percentage of the rates from property in the Urban Council area (Hong Kong, Kowloon and New Kowloon) and in the Regional Council area (New Territories). Additional income is derived from fees and charges for the services the councils provide.

The Hong Kong Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from flat sales and rents. If the authority's cash flow is inadequate to meet the construction costs of new estates, it may request an injection of capital by the government. The authority is provided with land on concessionary terms for the construction of public rental housing. Part of the authority's recurrent expenditure, for activities such as clearances and squatter control, is financed from the General Revenue Account. The authority is also responsible for carrying out a programme of squatter area improvements, which are funded from the Capital Works Reserve Fund.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low. The principal direct taxes are salaries tax and profits tax. Important indirect taxes include rates on property, stamp duty on property and stock market transactions, betting duty and duties on certain specified commodities. The government accords a high priority to curbing tax avoidance and evasion. (For a compilation of the major sources of revenue, see Appendix 11.)