ENG-2009 — Page 109

The Economy 61

Management of Public Finances

The principles underlying the Government's management of 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

Public expenditure comprises government expenditure and expenditure by the Trading Funds and the Housing Authority. It does not include expenditure by those organisations, including statutory organisations, in which the Government has only an equity position, such as the Airport Authority and the MTR Corporation Limited.

Financial Results

The Government's consolidated account recorded a surplus of $1.5 billion after repayment of bonds and notes in 2008-09. Fiscal reserves at the end of March 2009 stood at $494.4 billion. This reserve is available to meet any calls on the Government's contingent liabilities and to cope with any short-term fluctuations in expenditure relative to revenue.

Total government revenue in 2008-09 amounted to $316.6 billion, expenditure $312.4 billion and repayment of bonds and notes $2.7 billion. For details of revenue by source and of expenditure by component for 2008-09 and 2009-10 (Revised Estimate) see Appendix 6, Table 6.

Public expenditure in 2008-09 totalled $331 billion, an increase of 31.1 per cent over the previous year. Some $226.9 billion, or 68.5 per cent of the public expenditure in 2008-09, was of a recurrent nature. Table 7 gives an analysis of expenditure by policy area group and Table 8, the growth rate of public expenditure as compared with the rate of economic growth.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, and the Government gives a high priority to curbing tax evasion and minimising opportunities for tax avoidance. The major sources of revenue are profits tax (33 per cent), land fund, properties and investments (16 per cent) and salaries tax (12 per cent). Other significant sources include revenue from stamp duties (10 per cent), land premium (5 per cent), utilities, fees and charges for services provided by the Government (5 per cent), bets and sweeps tax (4 per cent), general rates (2 per cent), and duties on dutiable commodities (2 per cent). These major sources of revenue are presented at Appendix 6, Chart 1.

The Inland Revenue Department collects about 60 per cent of total revenue, including profits tax, salaries tax, property tax, stamp duties, bets and sweeps tax, and hotel accommodation tax. Profits, salaries and property taxes (including tax under personal assessment), which together accounted for about 46 per cent of the