ENG-1999 — Page 93

THE ECONOMY

The Land Fund was established on July 1, 1997 to enable the investments held by the former Trustees of the HKSAR Government Land Fund to be formally brought into the Government's account. It derives income from investment.

The Innovation and Technology Fund was established on June 30, 1999 to finance projects that contribute to innovation and technology upgrading in the manufacturing and service industries, as well as those that contribute to the upgrading and development of the manufacturing and service industries. It derives income mainly from appropriation from the General Revenue Account and investment.

The Lotteries Fund finances welfare services through grants and loans. Its 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 Government's overall consolidated financial position.

The most important principle underlying the Government's management of the 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 legislature each year is developed against the background of the medium-range forecast to ensure that full regard is given to this principle and to longer-term trends in the economy.

Public Expenditure

In accounting terms, public expenditure is taken to include expenditure by the Housing Authority, the two provisional municipal councils (before their dissolution on December 31, 1999), the Lotteries Fund and government trading funds, all expenditure charged to the General Revenue Account and expenditure financed by the Government's statutory funds other than the Capital Investment Fund. Government grants and subventions to institutions in the private or quasi-private sectors are included, but not spending by organisations in which the Government has only an equity stake (such as the Mass Transit Railway Corporation, the Kowloon- Canton Railway Corporation and the Airport Authority). Similarly, debt repayments and equity payments are excluded as they do not reflect the actual consumption of resources by the Government.

Public expenditure in 1998-99 totalled $266.4 billion. The Government itself accounted for $216.2 billion(Note 1). The growth rate over the preceding year was 13.5 per cent in nominal terms or 8.0 per cent in real terms. Some $78.6 billion, or 29.5 per cent of the public expenditure in 1998-99, was of a capital nature. An analysis of expenditure by function is at Appendix 10. The growth rate of public expenditure is compared with the rate of economic growth at Appendix 12.

Total government revenue in 1998-99 amounted to $216.1 billion. The consolidated cash deficit for the year was $23.2 billion. Details of revenue by source and of expenditure by component for 1998-99 and 1999-2000 (Revised Estimate) are at Appendix 13.

Note 1: Excluding $2.6 billion being payment to the two provisional municipal councils to avoid the double

counting of expenditure.

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