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The Economy

Reserve Fund, Disaster Relief Fund, Innovation and Technology Fund, Land Fund, Loan Fund and 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 2019-20, government revenue was $590.9 billion and expenditure was $607.8 billion, resulting in a deficit of $10.6 billion after receipt of net proceeds of $7.8 billion from bonds issued under the Government Green Bond Programme and repayment of notes of $1.5 billion. Fiscal reserves at 31 March 2020 stood at $1,160.3 billion, equivalent to 23 months of government expenditure.

Public expenditure comprises government expenditure and expenditure by the Housing Authority and trading funds. In 2019-20, public expenditure increased 13.2 per cent against the previous year to $642.7 billion, of which $459.8 billion, or 71.5 per cent, was of a recurrent

nature.

Future Fund

The Future Fund, with an endowment of $224.5 billion, seeks to secure higher returns for Hong Kong's fiscal reserves through placement in longer-term investments to cope with foreseeable long-term fiscal challenges arising from an ageing population and slower economic growth.

The fund has been placed with the Exchange Fund. Investment returns arising from the Future Fund are retained by the Exchange Fund for reinvestment and shall be paid to the government upon completion of the placement period or on a date as directed by the Financial Secretary.

In June, in a bid to uphold Hong Kong's status as an international aviation hub, $27.3 billion was allocated from the Future Fund for investment in Cathay Pacific Airways Limited. The investment will remain part of the Future Fund.

Revenue Sources

Hong Kong's tax system is simple. Tax rates and the cost of administration are low. To protect tax revenue, the government takes vigorous measures to combat tax evasion and prevent tax avoidance. The major sources of revenue include profits tax (26.4 per cent), land premium (24 per cent), stamp duties (11.4 per cent) and salaries tax (8.5 per cent).

The Inland Revenue Department collects 51.3 per cent of total government revenue, including profits tax, salaries tax, property tax, stamp duties and betting and sweeps tax. Profits, salaries and property taxes, including tax under personal assessment, are levied under the Inland Revenue Ordinance and together accounted for 36.2 per cent of total government revenue in 2019-20.

Profits tax is charged only on profits arising in, or derived from, Hong Kong from a trade, profession or business carried on within the territory. In the 2018-19 year of assessment, a two-tiered profits tax rate regime was launched, lowering the profits tax rates for the first

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