ENG-2003 — Page 100

THE ECONOMY

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from the General Revenue Account. Its income is derived from appropriation from the General Revenue Account and investment income.

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

The Innovation and Technology Fund finances 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. Its income is derived mainly from investment income.

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. Its income is derived from investment income.

The Loan Fund finances loan schemes such as housing loans and student loans. Its income is derived mainly from loan repayments and interest.

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 Public Finances

The principles underlying the Government's management of the public finance are set out in the Basic Law: to keep expenditure within the limits of revenues in drawing up the budget, to strive to achieve a fiscal balance, to avoid deficits and to keep the budget commensurate with the growth rate of its gross domestic product. The Budget presented by the Financial Secretary to the legislature each year is developed against the background of a medium-range forecast to ensure that full regard is given to the longer-term trends in the economy.

Public Expenditure

In accounting terms, public expenditure is taken to include government expenditure from the General Revenue Account and the other funds except loans and investment from the Capital Investment Fund, plus expenditure by the Housing Authority, the Lotteries Fund and government trading funds. 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, loans and equity injections by the Capital Investment Fund are excluded as they do not reflect the actual consumption of resources by the Government.

The Housing Authority, operating through the Housing Department, is financially autonomous. The Government provides the Authority with capital and land on concessionary terms to finance housing loans to eligible families and to build public housing for rent and for sale. However, as part of the measures to stabilise the property market, the Government announced in November 2002 that the production and sale of subsidised Home Ownership Scheme flats would cease indefinitely from 2003 onwards.

A trading fund is an accounting entity enabling a department to provide services on a commercial or quasi-commercial basis. Unlike a vote-funded department,