ENG-2015 — Page 83

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The Economy

The GDP deflator increased 3.9 per cent in 2015, up from a 2.9 per cent increase in 2014, mainly reflecting the improvement in terms of trade (chart 14).

Chart 14

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

Per cent

8

6

2

GDP deflator

O

-2

+

Underlying Composite CPI

2012 |

2013

2014

|

2015

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

2011

|

Underlying inflation eased further in 2015 because of softer import prices and tamed domestic cost pressures.

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 Hong Kong Special Administrative Region (HKSAR) shall have independent finances, and shall use its revenues exclusively for its own purposes.

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

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

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

The government implements these constitutional provisions in its management of public finances by maintaining a low and simple tax regime and exercising fiscal prudence. Hong Kong's Public Finance Ordinance stipulates a system for the control and management of Hong Kong's public finances and defines the respective powers and functions of the legislature and

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