ENG-2015 — Page 84

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The Economy

the executive. Pursuant to the ordinance, the Financial Secretary submits to LegCo an annual set of estimates of revenue and expenditure. The estimates are drawn up in the context of a medium-range forecast, which is a fiscal planning tool to ensure appropriate regard is given to the longer-term trends in the economy.

A government department can only incur expenditure up to the amounts stated in the expenditure estimates and for the purposes approved by LegCo. During the financial year, which runs from 1 April to 31 March, if a department needs to change the expenditure estimates and spend more money, it must obtain LegCo's authorisation.

The government controls its finances through the General Revenue Account (GRA) and various funds established under the ordinance. The GRA is the main account for day-to-day departmental expenditure and revenue collection. Funds established under the ordinance are the Bond Fund, the Capital Investment Fund, the Capital Works Reserve Fund, the Civil Service Pension Reserve Fund, the Disaster Relief Fund, the Innovation and Technology Fund, the Land Fund, the Loan Fund and the Lotteries Fund. The total revenue and expenditure of the GRA and all these funds except the Bond Fund represent government revenue and government expenditure respectively, and the total balance of the GRA and the funds except the Bond Fund constitutes government fiscal reserves.

Financial Results

For 2014-15, the government recorded a surplus of $72.8 billion, with revenue of $478.7 billion, expenditure of $396.2 billion and repayment of government bonds and notes of $9.7 billion. Fiscal reserves at the end of March 2015 stood at $828.5 billion, equivalent to 25 months of government expenditure. Highlights of government revenue and expenditure for 2014-15 and 2015-16 (Revised Estimate) are in table 6 of Appendix 6.

Public expenditure comprises government expenditure and expenditure by the Housing Authority and Trading Funds. In 2014-15, public expenditure decreased 7.3 per cent against the previous year to $424.1 billion, of which some $321.9 billion, or 75.9 per cent, was of a recurrent nature. Table 7 gives an analysis of public expenditure by policy area group and Table 8, the growth rate of public expenditure as compared with the rate of economic growth.

Injection into Housing Reserve

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The government had set aside about $45 billion - the investment returns on its fiscal reserves for 2015 for further injection into the Housing Reserve to support the 10-year public housing supply target. Together with an initial sum earmarked for the purpose last year and the interest accrued, the Housing Reserve measured about $74 billion as at 31 December 2015.

Establishment of Future Fund

In December 2015, the government announced the establishment of a Future Fund (FF) with effect from 1 January 2016 with a view to securing higher returns for its fiscal reserves. This is part of fiscal measures to cope with foreseeable long-term fiscal challenges arising from an ageing population and slower economic growth. The FF would be a long-term investment tool and would remain an integral part of the fiscal reserves. It would be placed with the Exchange Fund for an initial period of 10 years from 1 January 2016 to 31 December 2025.

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