ENG-2011 — Page 103

The Economy | 67

As a broad measure of the overall change in prices in the economy, the GDP deflator rose by 3.6 per cent in 2011, following an increase of 0.3 per cent in 2010, in line with the further pick-up in domestic cost pressure. The domestic demand deflator went up by 4.3 per cent in 2011, notably faster than the 2.1 per cent increase in 2010 (Chart 17).

Chart 17

Main Inflation Indicators (year-on-year rate of change)

-2

6

4

2

O

Per cent

8

GDP deflator

Composite CPI

-4

Q1 Q2 Q3 Q4 Q1

2007 |

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008

2009

2010 | 2011

Inflation went up progressively during most of 2011 before stabilising towards the year-end, driven by both higher local cost pressures and imported inflation.

Public Finance

Management of Public Finance

The principles underlying the Government's management of public finances are enshrined in the Basic Law, which stipulates that:

• The HKSAR shall have independent finances, and shall use its revenues exclusively for its own purposes.

• HKSAR shall practice an independent taxation system, taking the low tax policy previously pursued in Hong Kong as reference.

• HKSAR shall follow the principle of keeping expenditure within the limits of revenues in drawing up the budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of the Gross Domestic Product.

• The Legislative Council of HKSAR shall exercise the power to approve taxation and public expenditure.