ENG-2001 — Page 108

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 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 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 2000-2001 totalled $267.5 billion. The Government itself accounted for $224.8 billion. The growth rate over the preceding year was -0.7 per cent in nominal terms or -0.4 per cent in real terms. Some $66.7 billion, or 24.9 per cent of the public expenditure in 2000-2001, 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 2000-2001 amounted to $225.1 billion. The consolidated cash deficit for the year was $7.8 billion. Details of revenue by source and of expenditure by component for 2000-2001 and 2001-02 (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 deficit of $7.8 billion in 2000-2001. The accumulated balances at the end of 2000-2001 stood at $430.3 billion. These balances form the Government's fiscal reserves and are available to meet any calls on its contingent liabilities and enable it to cope with any short-term fluctuations in expenditure relative to revenue.

The Housing Authority, operating through the Housing Department, is financially autonomous. The Government provides the authority with capital and land on