ENG-2000 — Page 102

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THE ECONOMY

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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 former Provisional Municipal Councils (up to December 31, 1999), the Lotteries Fund and government trading funds, all expenditure charged to the General Revenue Account (Note 1) 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 MTR Corporation Limited, 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 1999-2000 totalled $269.5 billion. The Government itself accounted for $214.5 billion (Note 1). The growth rate over the preceding year was 1.0 per cent in nominal terms or 0.5 per cent in real terms. Some $72.2 billion, or 26.8 per cent of the public expenditure in 1999–2000, was of a capital nature. An analysis of expenditure by function is at Appendix 11. The growth rate of public expenditure is compared with the rate of economic growth at Appendix 13.

Total government revenue in 1999–2000 amounted to $233.0 billion. The consolidated cash surplus for the year was $10.0 billion. Details of revenue by source and of expenditure by component for 1999-2000 and 2000–01 (Revised Estimate) are at Appendix 14.

The draft estimates of expenditure on the General Revenue Account are presented by the Financial Secretary to the legislature when he delivers his annual budget speech. In the Appropriation Bill introduced to the legislature 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 expenditure 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.

The Government's consolidated account recorded a surplus of $10.0 billion in 1999-2000. The accumulated balances at the end of 1999-2000 stood at $444.3 billion. These balances form the Government's fiscal reserves and are available to

Note 1: With effect from January 1, 2000, services provided through the two former Provisional Municipal Councils are provided directly by the Government and the expenditure is charged to the General Revenue Account.