ENG-1995 — Page 94

THE ECONOMY

appropriations from the General Revenue Account, dividends and interest on investments.

The Civil Service Pension Reserve Fund was set up in January 1995 and acts as a reserve to meet payment of civil service pensions in the most unlikely event that the government cannot meet such liabilities from the General Revenue. Its income is derived mainly from appropriations from the General Revenue Account.

The Disaster Relief Fund finances grants for humanitarian aid in the event of disasters that occur outside Hong Kong. Its income is derived mainly from appro- priations from the General Revenue Account.

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

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 the popular 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 provides a model for 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 finance is that government expenditure, over time, should not grow faster than the economy as a whole. 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 1994-95 totalled $166 billion. The government itself accounted for $143.2 billion, excluding equity injections to the Mass Transit Railway Cor- poration, the Provisional Airport Authority and other bodies. The growth rate over the preceding year was 6.9 per cent in nominal terms or -2.2 per cent in real terms. Some $46.0 billion, or 27.7 per cent of the public expenditure in 1994–95, was of a capital nature. An analysis of expenditure by function is at Appendix 7.

Public expenditure has remained comfortably below 20 per cent of the gross domestic product for the last decade. The growth rate of public expenditure is compared with the rate of economic growth at Appendix 9.

Total government revenue in 1994–95 amounted to $175 billion. The consolidated cash surplus, after the repayment of $2.4 billion for bond redemption, was $10.8 billion. Details of revenue by source and of expenditure by component for 1994-95 and 1995–96 (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 to the Legislative Council at the

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