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APPENDICES |
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A.
MEDIUM RANGE FORECAST 2003-04 TO 2008-09
B.
ANALYSIS OF PUBLIC/GOVERNMENT EXPENDITURE 1999-2000
TO
2004-05
Allocation of resources between policy area groups.
C.
GLOSSARY
OF TERMS
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APPENDIX
A
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MEDIUM
RANGE FORECAST
2003-04 TO
2008-09
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INTRODUCTION |
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The Medium Range Forecast (MRF) is a projection of expenditure and revenue for the forecast period based on the forecasting assumptions and budgetary criteria outlined in Section I of this Appendix. |
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2
The MRF is presented in three sections
-
(I)
Forecasting assumptions and budgetary criteria.
(II)
The MRF for 2003-04 to 2008-09.
(III) Relationship between Government Expenditure, Public Expenditure
and GDP in the
MRF.
3
Government's contingent liabilities at 31 March 2003 and estimates of these at 31 March 2004 and 31 March 2005 are provided in Section IV of this Appendix as supplementary information to the
MRF.
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SECTION
I - FORECASTING ASSUMPTIONS AND BUDGETARY CRITERIA |
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4
A number of computer based models are used to derive the MRF. These models reflect a wide range of assumptions about the factors determining each of the components of Government's revenue and expenditure. Some are economic in nature (the general economic assumptions) while others deal with specific areas of Government's activity (the detailed assumptions). These are supported by studies of historical and anticipated trends. |
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General
Economic Assumptions |
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Real
Gross Domestic Product (real GDP)
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5
For planning purposes, the assumption on the trend growth rate in real terms of GDP for the medium-term period 2004 to 2008 is set at 3.8% per annum (comprising a 6% growth for 2004, and an average growth of 3.3% per annum for the ensuing period 2005 to 2008).
Price
change
6
Over the period 2004 to 2008, the trend rate of increase in the GDP deflator, measuring overall price change in the economy, is assumed at 0.7% per annum (comprising a decrease of 3% for 2004, and an average increase of 1.6% per annum for the ensuing period 2005 to 2008). The trend rate of increase in the Composite Consumer Price Index, measuring price change in the consumer domain, is assumed at 1% per annum (comprising a decrease of 1% for 2004, and an average increase of 1.5% per annum for the ensuing period 2005 to 2008).
Nominal
Gross Domestic Product (nominal GDP)
7
Taking the assumptions on the trend rates of change in the real GDP and the GDP deflator together, the trend growth rate of nominal GDP is thus assumed at 4.5% per annum for the period 2004 to 2008 (comprising a 2.8% growth for 2004, and an average growth of 4.9% per annum for the ensuing period 2005 to 2008).
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Detailed
Assumptions |
8 The MRF incorporates a wide range of detailed assumptions on expenditure and revenue patterns over the forecast period, taking the following, amongst other factors, into account-
- estimated cash flow of capital projects,
- forecast completion dates of these capital projects and their related recurrent consequences in terms of staffing and running costs,
- estimated cash flow arising from new commitments resulting from policy initiatives,
- the expected pattern of demand for individual services,
- the trend in yield from individual revenue sources, and
- new revenue/expenditure measures in the 2004 Budget.
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Budgetary
Criteria |
9
In addition to the above forecasting assumptions, there are a number of criteria against which the results of forecasts are tested for overall acceptability in terms of budgetary policy.
10
The following are the more important budgetary criteria-
- Budget surplus/deficit
The Government aims to achieve balance in consolidated and operating accounts by 2008-09. In the longer term, the Government needs to achieve an operating surplus to partially finance capital expenditure.
- Operating expenditure
The Government aims to bring operating expenditure down to $200 billion by 2008-09.
- Capital expenditure
By its nature some fluctuations in the level of capital expenditure are to be expected. However, over a period the aim is to contain capital expenditure within overall expenditure guidelines.
- Total expenditure
The general principle is that, over time, expenditure growth should not exceed the growth of the economy, taking into account both real and nominal terms. The Government aims to keep public expenditure at or below 20% of GDP by 2008-09.
- Revenue policy
Account is taken of the need to maintain over time the real yield from revenue.
- Fiscal reserves
The Government in the long run aims to maintain the level of reserves at around 12 months of total government expenditure.
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SECTION II - THE MRF FOR 2003-04 TO 2008-09 |
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11 The current MRF (Note
a) is summarised in the following table which indicates the forecast operating position, capital financing position and consolidated reserves position- |
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Table 1 |
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($
million) |
Original Estimate |
Original Estimate as
updated* |
Revised
Estimate |
Forecast |
| 2003-04 |
2003-04 |
2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
2008-09 |
| Operating
Account |
| Operating revenue (Note
b) |
149,183 |
143,847 |
147,672 |
155,593 |
162,939 |
171,291 |
179,472 |
189,299 |
| Operating Expenditure
(Note c) |
213,595 |
217,442 |
206,734 |
212,200 |
210,620 |
207,080 |
203,540 |
200,000 |
| Surplus/(deficit) before
investment income |
(64,412) |
(73,595) |
(59,062) |
(56,607) |
(47,681) |
(35,789) |
(24,068) |
(10,701) |
| Investment income
(Note b) |
10,991 |
10,991 |
23,036 |
10,039 |
7,761 |
6,374 |
5,458 |
5,479 |
| Operating surplus/(deficit) after investment income |
(53,421) |
(62,604) |
(36,026) |
(46,568) |
(39,920) |
(29,415) |
(18,610) |
(5,222) |
| Capital Financing Statement |
| Capital revenue (Note
d) |
11,237 |
11,237 |
14,851 |
18,624 |
23,315 |
27,261 |
31,819 |
36,012 |
| Asset sales/securitisation |
21,000 |
21,000 |
15,467 |
17,000 |
31,000 |
15,000 |
22,000 |
11,000 |
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32,237 |
32,237 |
30,318 |
35,624 |
54,315 |
42,261 |
53,819 |
47,012 |
| Capital Spending (Note
e) |
47,799 |
47,799 |
46,126 |
53,418 |
52,301 |
45,891 |
39,639 |
37,084 |
| Surplus/(deficit) before investment income |
(15,562) |
(15,562) |
(15,808) |
(17,794) |
2,014 |
(3,630) |
14,180 |
9,928 |
| Investment income (Note
d) |
1,116 |
1,116 |
2,811 |
2,215 |
2,519 |
2,201 |
2,241 |
2,290 |
| Surplus/(deficit) after investment income |
(14,446) |
(14,446) |
(12,997) |
(15,579) |
4,533 |
(1,429) |
16,421 |
12,218 |
| Government bond issuance (Note
f) |
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| - Indicative borrowing |
- |
- |
- |
20,000 |
- |
- |
- |
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| - Interest expenses |
- |
- |
- |
500 |
1,000 |
1,000 |
1,000 |
1,000 |
| Capital financing surplus/(deficit) after government bond issuance |
(14,446) |
(14,446) |
(12,997) |
3,921 |
3,533 |
(2,429) |
15,421 |
11,218 |
| Consolidated Reserves |
| Balance at 1 April
(Note g) |
307,014 |
307,014 |
315,471 |
266,448 |
223,801 |
187,414 |
155,570 |
152,381 |
| Operating surplus/(deficit) |
(53,421) |
(62,604) |
(36,026) |
(46,568) |
(39,920) |
(29,415) |
(18,610) |
(5,222) |
| Capital financing surplus/(deficit)
before Government bond issuance |
(14,446) |
(14,446) |
(12,997) |
(15,579) |
4,533 |
(1,429) |
16,421 |
12,218 |
| Consolidated surplus/(deficit) |
(67,867) |
(77,050) |
(49,023) |
(62,147) |
(35,387) |
(30,844) |
(2,189) |
6,996 |
| Government bond issuance (Note
f) |
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| - Indicative borrowing |
- |
- |
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20,000 |
- |
- |
- |
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| - Interest expenses |
- |
- |
- |
500 |
1,000 |
1,000 |
1,000 |
1,000 |
| Consolidated surplus/(deficit) after government bond issuance |
(67,867) |
(77,050) |
(49,023) |
(42,647) |
(36,387) |
(31,844) |
(3,189) |
5,996 |
| Balance at 31 March
(Note g) |
239,147 |
229,964 |
266,448 |
223,801 |
187,414 |
155,570 |
152,381 |
158,377 |
| As number of months of government expenditure |
11 |
11 |
13 |
10 |
9 |
7 |
8 |
8 |
| Indicative outstanding debt |
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| - Government bonds (Note
f) |
- |
- |
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20,000 |
20,000 |
20,000 |
20,000 |
20,000 |
| - Securitisation notes (Note
h) |
- |
- |
- |
6,000 |
5,250 |
4,500 |
3,750 |
3,000 |
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* |
The 2003-04 Original Estimate has been updated to reflect the relief package covering expenditure measures of $3.8 billion and revenue concessions of $5.3 billion for dealing with the outbreak of the Severe and Acute Respiratory Syndrome (SARS). |
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Notes- |
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(a) |
Accounting
policies |
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(i) |
The MRF is prepared on a cash basis and reflects forecast receipts and payments, whether or not they relate to operating or capital transactions. |
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(ii) |
The MRF includes the General Revenue Account and the Funds (Capital Investment Fund, Capital Works Reserve Fund, Civil Service Pension Reserve Fund, Disaster Relief Fund, Innovation and Technology Fund, Land Fund, Loan Fund, and Lotteries Fund). |
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(b) |
Operating
revenue |
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(i) |
The operating revenue has taken into account the revenue-concession and revenue-raising measures proposed in the 2004 Budget. |
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(ii) |
For the purpose of the MRF, the investment earnings of the balance of the General Revenue Account which are credited to revenue head Properties and Investments and the investment earnings of the Land Fund are consolidated and shown under Investment Income of the Operating Account. The rate of return on investment earnings is assumed at 5% per annum in 2004-05 to 2008-09. |
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(c) |
Operating
expenditure |
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(i) |
The operating expenditure in 2003-04 and 2004-05 includes forecast expenditure of $2.6 billion and $4.2 billion respectively for the first and second Voluntary Retirement Schemes. The one-off expenditure under these schemes comprises commuted pensions and compensation for takers of the schemes. |
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(ii) |
The level of operating expenditure in 2004-05 to 2008-09 has taken into account the 6% reduction in the salaries of the civil service and the salary-related portion of recurrent subventions which will take effect by two equal instalments, i.e. on 1 January 2004 and 1 January 2005. |
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(d) |
Capital
revenue |
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(i) |
The breakdown of capital revenue excluding proceeds from sale/securitisation of assets and investment income is-
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2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
2008-09 |
| ($ million) |
| General Revenue
Account |
3,866 |
2,112 |
1,683 |
1,763 |
1,848 |
1,937 |
| Capital Works Reserve
Fund |
5,165 |
12,020 |
18,651 |
22,363 |
26,369 |
30,771 |
| Capital Investment Fund |
2,402 |
2,180 |
1,531 |
1,486 |
1,467 |
948 |
| Civil Service Pension Reserve Fund |
- |
- |
- |
- |
- |
- |
| Innovation and Technology Fund |
8 |
- |
- |
- |
- |
- |
| Loan Fund |
2,544 |
1,417 |
477 |
642 |
1,064 |
1,274 |
| Lotteries Fund |
866 |
895 |
973 |
1,007 |
1,044 |
1,082 |
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_______ |
_______ |
_______ |
_______ |
_______ |
| Total |
14,851 |
18,624 |
23,315 |
27,261 |
31,819 |
36,012 |
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_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
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(ii) |
For the purpose of the MRF, the annual land premia included under the Capital Works Reserve Fund for 2005-06 to 2008-09 are respectively assumed at 1.4%, 1.6%, 1.8% and 2% of GDP. |
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(iii) |
For the purpose of the MRF, the investment earnings of the various Funds other than that of Land Fund (i.e. Capital Investment Fund, Capital Works Reserve Fund, Civil Service Pension Reserve Fund, Disaster Relief Fund, Innovation and Technology Fund, Loan Fund and Lotteries Fund) are consolidated and shown under Investment Income of the Capital Financing Statement. |
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(e) |
Capital Spending |
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(i) |
The breakdown of capital spending excluding interest on government bonds is-
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2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
2008-09 |
| ($ million) |
| General Revenue Account |
1,984 |
1,805 |
3,860 |
3,970 |
3,970 |
3,970 |
| Capital Works Reserve Fund |
35,593 |
38,072 |
37,010 |
34,266 |
31,650 |
29,470 |
| Capital Investment Fund |
4,253 |
7,379 |
5,921 |
3,623 |
493 |
297 |
| Disaster Relief Fund |
11 |
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| Innovation and Technology Fund |
502 |
644 |
747 |
747 |
747 |
747 |
| Loan Fund |
2,710 |
4,353 |
3,186 |
2,570 |
2,177 |
1,938 |
| Lotteries Fund |
1,073 |
1,165 |
1,577 |
715 |
602 |
662 |
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_______ |
_______ |
_______ |
_______ |
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| Total |
46,126 |
53,418 |
52,301 |
45,891 |
39,639 |
37,084 |
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_______ |
_______ |
_______ |
_______ |
_______ |
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(ii) |
Capital expenditure under the General Revenue Account covers purchase of equipment, and works and capital subventions of a minor nature. |
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(iii) |
Capital expenditure under the Capital Works Reserve Fund covers expenditure on the Public Works Programme, land acquisition, capital subventions, major systems and equipment, and computerisation. Interest on government bonds is charged to the Capital Works Reserve Fund but is shown separately under
Table 1. |
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(iv) |
Payments from the Capital Investment Fund include advances and equity investments mainly to Trading Funds and government-owned corporations. |
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(v) |
Capital expenditure under the Disaster Relief Fund provides relief to disasters that occur outside Hong Kong. Because of the unpredictable nature of disasters, no estimate of future expenditure is made for the forecast period. |
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(vi) |
Capital expenditure under the Innovation and Technology Fund is intended to finance projects to help promote innovation and technology upgrading in manufacturing and service industries. |
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(vii) |
Capital expenditure under the Loan Fund includes loans to schools, teachers, students, housing loans, and loans under the special finance scheme for small and medium enterprises. |
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(viii) |
Capital expenditure under the Lotteries Fund provides grants, loans and advances for social welfare services. |
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| (f) |
Government bond issuance |
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(i) |
The government bonds are included for indicative purpose. The exact timing for and amount of the bond issue will be subject to review and necessary approval. |
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(ii) |
For the purpose of the MRF, interest on government bonds is assumed at 5% per annum. The exact interest will be subject to the actual interest rate at the time of the bond issuance. It will be charged as capital expenditure of the Capital Works Reserve Fund. |
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| (g) |
Fiscal reserves |
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The fiscal reserves represent the accumulated balances of the General Revenue Account and the Funds, including the government bond issuance. |
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| (h) |
Securitisation notes |
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The securitisation notes arise from the forecast securitisation in 2004-05 of tolls from government tunnels and bridges. For the purpose of the MRF, the outstanding amount of securitisation notes is assumed to be reducing at a rate of about $750 million each year. Repayment of principal and interest of these notes will be funded by revenue of concerned tunnels and bridges. The revenue forgone has been taken into account when forecasting Government's annual operating revenue. |
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SECTION III - RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE, PUBLIC EXPENDITURE AND GDP IN THE MRF |
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12 For monitoring purposes, the Government's own expenditure is consolidated with the
expenditure of the Housing Authority and the Trading Funds (collectively referred to as 㺸ther public bodies? in order to compare total public expenditure with Gross Domestic Products. |
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Government Expenditure and Public Expenditure in the Context
of the Economy |
Table 2 |
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($
million) |
Original Estimate |
Original Estimate as
updated* |
Revised
Estimate |
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