The 2004-05 Budget - Budget Speech

APPENDICES

A. MEDIUM RANGE FORECAST 2003-04 TO 2008-09

Forecast of Government's expenditure and revenue in the period up 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

APPENDIX A

MEDIUM RANGE FORECAST

2003-04 TO 2008-09

INTRODUCTION

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.

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.

SECTION I - FORECASTING ASSUMPTIONS AND BUDGETARY CRITERIA

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.

General Economic Assumptions

Real Gross Domestic Product (real GDP)

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).

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.

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.

SECTION II - THE MRF FOR 2003-04 TO 2008-09

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-

Table 1

($ million)	Original Estimate	Original Estimate as updated*	Revised Estimate	Forecast
($ million)	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
	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)
- Indicative borrowing	-	-	-	20,000	-	-	-	-
- 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)
- Indicative borrowing	-	-	-	20,000	-	-	-	-
- 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
- Government bonds (Note f)	-	-	-	20,000	20,000	20,000	20,000	20,000
- Securitisation notes (Note h)	-	-	-	6,000	5,250	4,500	3,750	3,000

*	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).

Notes-

(a)	Accounting policies

	(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.
	(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).

(b)	Operating revenue

	(i)	The operating revenue has taken into account the revenue-concession and revenue-raising measures proposed in the 2004 Budget.
	(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.

(c)	Operating expenditure

	(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.
	(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.

(d)	Capital revenue

	(i)	The breakdown of capital revenue excluding proceeds from sale/securitisation of assets and investment income is-

	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
	_______	_______	_______	_______	_______	_______
Total	14,851	18,624	23,315	27,261	31,819	36,012
	_______	_______	_______	_______	_______	_______

	(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.
	(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.

(e)	Capital Spending

	(i)	The breakdown of capital spending excluding interest on government bonds is-

	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
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
	_______	_______	_______	_______	_______	_______
Total	46,126	53,418	52,301	45,891	39,639	37,084
	_______	_______	_______	_______	_______	_______

	(ii)	Capital expenditure under the General Revenue Account covers purchase of equipment, and works and capital subventions of a minor nature.
	(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.
	(iv)	Payments from the Capital Investment Fund include advances and equity investments mainly to Trading Funds and government-owned corporations.
	(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.
	(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.
	(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.
	(viii)	Capital expenditure under the Lotteries Fund provides grants, loans and advances for social welfare services.

(f)	Government bond issuance

	(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.
	(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.

(g)	Fiscal reserves

	The fiscal reserves represent the accumulated balances of the General Revenue Account and the Funds, including the government bond issuance.

(h)	Securitisation notes

	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.

SECTION III - RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE, PUBLIC EXPENDITURE AND GDP IN THE MRF

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.

Government Expenditure and Public Expenditure in the Context
of the Economy

Table 2

($ million)	Original Estimate	Original Estimate as updated*	Revised Estimate	Forecast
($ million)	2003-04	2003-04	2003-04	2004-05	2005-06	2006-07	2007-08	2008-09
Operating expenditure	213,595	217,442	206,734	212,200	210,620	207,080	203,540	200,000
Capital expenditure (Note a)	43,218	43,218	41,873	46,539	47,380	43,268	40,146	37,787
Total government expenditure	256,813	260,660	248,607	258,739	258,000	250,348	243,686	237,787
Other public bodies	29,702	29,702	30,576	27,235	19,734	19,808	20,606	21,464
Total public expenditure (Note b)	286,515	290,362	279,183	285,974	277,734	270,156	264,292	259,251
Gross Domestic Product (calendar year)	1,283,230	1,283,230	1,234,944	1,269,744	1,332,186	1,397,699	1,466,434	1,538,548
Growth in GDP (Note c)
Money terms			-2.0%	+2.8%	+4.9%	+4.9%	+4.9%	+4.9%
Real terms			+3.3%	+6.0%	+3.3%	+3.3%	+3.3%	+3.3%
Growth in government expenditure (Note d)
Money terms			+4.8%	+4.1%	-0.3%	-3.0%	-2.7%	-2.4%
Real terms			+7.2%	+6.5%	+0.2%	-3.4%	-3.1%	-2.8%
Growth in public expenditure (Note d)
Money terms			+5.9%	+2.4%	-2.9%	-2.7%	-2.2%	-1.9%
Real terms			+8.4%	+4.8%	-2.5%	-3.2%	-2.6%	-2.3%
Public expenditure as a percentage of GDP	22.3%	22.6%	22.6%	22.5%	20.8%	19.3%	18.0%	16.9%

*	The 2003-04 Original Estimate has been updated to reflect the relief package for dealing with the outbreak of SARS. See note below Table 1.

Notes-

(a)	Capital expenditure includes interest on government bonds charged to Capital Works Reserve Fund.

(b)	Public expenditure comprises government expenditure (i.e. all expenditure charged to the General Revenue Account and financed by the Government's statutory funds excluding Capital Investment Fund), and expenditure by the Trading Funds and the Housing Authority. But not included is expenditure by those organisations, including statutory organisations, in which the Government has only an equity position, such as the Airport Authority, the MTR Corporation Ltd and the Kowloon-Canton Railway Corporation. Similarly, advances and equity investments from the Capital Investment Fund are excluded as they do not reflect the actual consumption of resources by the Government.

(c)	Over the period 2004-2008, the forecast trend growth rate of GDP in real terms is 3.8% per annum and, with the forecast trend rate of increase in the GDP deflator at 0.7% per annum, the forecast trend growth rate in nominal GDP is 4.5%.

(d)	The growth rates refer to year-on-year change. For example, the rates for 2003-04 refer to the change between revised estimate for 2003-04 and actual expenditure in 2002-03. The rates for 2004-05 refer to the change between the 2004-05 forecast over 2003-04 revised estimate and so forth.

13 Table 3 shows the relationship amongst the sum to be appropriated in the 2004 Budget, government expenditure and public expenditure. It also shows the effect of the Budget revenue measures on the overall surplus/deficit position for 2004-05.

Relationship between Government Expenditure
and Public Expenditure in 2004-05

Table 3

($ million)

Components of expenditure and revenue		Appropriation	Government expenditure and revenue			Public Expenditure
Components of expenditure and revenue		Appropriation	Operating	Capital	Total	Public Expenditure
Expenditure
General Revenue Account:
Operating
Recurrent		203,469	203,469	-	203,469	203,469
Non-recurrent		8,731	8,731	-	8,731	8,731
Capital account
Plant, equipment and works		917	-	917	917	917
Subventions		888	-	888	888	888
		214,005	212,200	1,805	214,005	214,005
Transfer to Funds		30,943	-	-	-	-
Capital Works Reserve Fund		-	-	38,072	38,072	38,072
Innovation and Technology Fund		-	-	644	644	644
Loan Fund		-	-	4,353	4,353	4,353
Lotteries Fund		-	-	1,165	1,165	1,165
Trading Funds		-	-	-	-	3,134
Housing Authority		-	-	-	-	24,101
		244,948	212,200	46,039	258,239	285,474
Revenue (before Budget revenue measures)
General Revenue Account:
Taxation			132,278	1,510	133,788
Other revenue			28,453	602	29,055
			160,731	2,112	162,843
Land Fund			7,061	-	7,061
			167,792	2,112	169,904

Capital Works Reserve Fund			-	13,041	13,041
Capital Investment Fund			-	2,190	2,190
Civil Service Pension Reserve Fund			-	744	744
Disaster Relief Fund			-	2	2
Innovation and Technology Fund			-	221	221
Loan Fund			-	1,426	1,426
Lotteries Fund			-	1,103	1,103
Asset sales/securitisation			-	17,000	17,000
			167,792	37,839	205,631
Surplus/(deficit) before Budget revenue measures			(44,408)	(8,200)	(52,608)
Less:	Effect of Budget revenue measures		2,160	-	2,160
Surplus/(deficit) after Budget revenue measures			(46,568)	(8,200)	(54,768)
Less:	Advances and equity investments from the Capital Investment Fund (Note a)		-	7,379	7,379
Consolidated surplus/(deficit) before government bond issuance			(46,568)	(15,579)	(62,147)
Government bond issuance
Indicative borrowing			-	20,000	20,000
Interest expenses (Note b)			-	500	500
Consolidated surplus/(deficit) after government bond issuance			(46,568)	3,921	(42,647)

Notes -

(a)	Advances and equity investments from the Capital Investment Fund are excluded from government expenditure (see also Note b to Table 2)
(b)	Interest on government bonds will be charged as capital expenditure of the Capital Works Reserve Fund.

SECTION IV - ESTIMATES OF CONTINGENT LIABILITIES

14 The Government's contingent liabilities are $17,743 million at 31 March 2003 and estimated to be $19,141 million at 31 March 2004 and $21,078 million at 31 March 2005, comprising-

(at 31 March)	2003	2004	2005
	$m	$m	$m
Guarantee to the Hong Kong Export Credit Insurance Corporation for liabilities under contracts of insurance	9,628	9,416	9,642
Litigation	4,709	4,605	4,716
Possible capital subscriptions to the Asian Development Bank	1,920	1,920	1,920
Guarantees provided under the SME Business Installations and Equipment Loan Guarantee Scheme, the Special Finance Scheme for Small and Medium Enterprises, the Film Guarantee Fund and the Loan Guarantee Scheme for Severe Acute Respiratory Syndrome Impacted Industries	1,486	3,200	4,800
	_________	________	________
Total	17,743	19,141	21,078
	_________	________	________

APPENDIX B

ANALYSIS OF PUBLIC / GOVERNMENT EXPENDITURE 1999-2000 TO 2004-05

CONTENTS

SECTION I - THE ESTIMATES IN THE CONTEXT OF THE ECONOMY

Relationship between Government Expenditure,
Public Expenditure in 2004-05 and GDP

Section II - Analysis of Recurrent Public/Government Expenditure by Policy Area Group

Recurrent Public Expenditure - Year-on-Year Change

Recurrent Government Expenditure - Year-on-Year Change

Percentage Share of Expenditure by Policy Area Group ?/span>

Recurrent Public Expenditure
Recurrent Government Expenditure

Section III - Analysis of Total Public/Government Expenditure by Policy Area Group

Total Public Expenditure ? Year-on-Year Change

Total Government Expenditure ? Year-on-Year Change

Percentage Share of Expenditure by Policy Area Group ?/span>

Total Public Expenditure
Total Government Expenditure

Section IV - Major Capital Projects to Begin in 2004-05

Section V - Trends in Public Expenditure : 1999-2000 to 2004-05

Section VI - Key to Classification of Expenditure

SECTION I - THE EstimateS in the Context of the Economy

Relationship between Government Expenditure, Public Expenditure in 2004-05 and GDP

(All figure in $million)

Public
Expenditure

General Revenue Account

Operating

212,200

Capital

1,805

_________

214,005

Capital Works Reserve Fund

38,572

Loan Fund

4,353

Lotteries Fund

1,165

Innovation and Technology Fund

644

_________

Government Expenditure

258,739

Trading Funds

3,134

Housing Authority

24,101

_________

285,974

_________

GDP

1,269,744

Public Expenditure as a % of GDP

22.5%

Public Expenditure as a percentage of GDP

Comparison of Cumulative Growth in Public Expenditure with Cimulative Growth in GDP since the Introduction of Medium Range Forecast

Section II - Analysis of Recurrent Public/Government Expenditure by Policy Area Group

Recurrent Public Expenditure : Year-on-Year Change

	(All figure in $million)
				% Increase/Decrease over 2003-04 original estimate
	2003-04 Original Estimate	2003-04 Revised Estimate	2004-05 Estimate	in Nominal Terms	in Real Terms
					(Note)
Education	49,261	46,761	49,189	-0.1	+2.4

Social Welfare	32,765	32,512	33,715	+2.9	+6.3

Health	31,889	31,706	30,325	-4.9	-2.1

Security	25,015	24,483	23,949	-4.3	-1.6

Housing	13,029	11,849	12,806	-1.7	+0.2

Infrastructure	11,762	11,392	11,367	-3.4	-1.4

Economic	11,138	10,857	10,844	-2.6	-0.5

Environment and Food	8,759	8,315	8,198	-6.4	-4.4

Community and External Affairs	7,568	7,350	7,116	-6.0	-4.2

Support	31,314	29,235	31,296	-0.1	+0.9

	________	________	________

	222,500	214,460	218,805	-1.7	+0.7

	________	________	________

Note:

As the above 2004-05 estimates has included assumptions on price changes for various expenditure components (e.g. operating expenses, plant and equipment, etc.) and the two-phased reduction in salaries for the civil service and the salary-related portion of recurrent subventions on 1 January 2004 and 1 January 2005, the percentage increase/decrease in real terms is calculated after adjustment to bring the expenditure figures for 2003-04 and 2004-05 to the same price level.

Recurrent Government Expenditure : Year-on-Year Change

	(All figure in $million)
				% Increase/Decrease over 2003-04 original estimate
	2003-04 Original Estimate	2003-04 Revised Estimate	2004-05 Estimate	in Nominal Terms	in Real Terms
					(Note)
Education	49,261	46,761	49,189	-0.1	+2.4

Social Welfare	32,765	32,512	33,715	+2.9	+6.3

Health	31,889	31,706	30,325	-4.9	-2.1

Security	25,015	24,483	23,949	-4.3	-1.6

Infrastructure	11,614	11,260	11,248	-3.2	-1.2

Environment and Food	8,759	8,315	8,198	-6.4	-4.4

Economic	8,266	7,935	7,978	-3.5	-1.2

Community and External Affairs	7,568	7,350	7,116	-6.0	-4.2

Housing	531	471	455	-14.3	-13.0

Support	31,314	29,235	31,296	-0.1	+0.9

	________	________	________

	206,982	200,028	203,469	-1.7	+0.7

	________	________	________

Note:

Percentage Share of Expenditure by Policy Area Group - Recurrent Public Expenditure

SECTION III - ANALYSIS OF TOTAL PUBLIC/GOVERNMENT EXPENDITURE BY POLICY AREA GROUP

Total Public Expenditure : Year-on-Year Change


				% Increase/Decrease over 2003-04 original estimate
	2003-04 Original Estimate	2003-04 Revised Estimate	2004-05 Estimate	in Nominal Terms	in Real Terms
(All figures in $million)					(Note)
Education	61,023	57,748	59,542	-2.4	-0.1

Social Welfare	33,974	33,997	35,404	+4.2	+7.6

Health	33,404	34,485	32,977	-1.3	+1.7

Infrastructure	27,092	26,363	30,173	+11.4	+14.0

Security	27,915	27,456	27,032	-3.2	-0.6

Housing	26,942	27,854	24,583	-8.8	-6.9

Economic	17,118	15,561	16,675	-2.6	-0.7

Environment and Food	11,348	11,213	12,604	+11.1	+13.3

Community and External Affairs	8,956	8,256	8,593	-4.1	-2.2

Support	38,743	35,980	38,391	-0.9	+0.1

	________	________	________

	286,515	279,183	285,974	-0.2	+2.1

	________	________	________

Note:

Total Government Expenditure : Year-on-Year Change


				% Increase/Decrease over 2003-04 original estimate
	2003-04 Original Estimate	2003-04 Revised Estimate	2004-05 Estimate	in Nominal Terms	in Real Terms
(All figure in $million)					(Note)
Education	61,023	57,748	59,542	-2.4	-0.1

Social Welfare	33,974	33,997	35,404	+4.2	+7.6

Health	33,404	34,485	32,977	-1.3	+1.7

Infrastructure	26,865	26,184	30,024	+11.8	+14.4

Security	27,915	27,456	27,032	-3.2	-0.6

Economic	13,987	12,493	13,690	-2.1	-0.2

Environment and Food	11,348	11,213	12,604	+11.1	+13.3

Community and External Affairs	8,956	8,526	8,593	-4.1	-2.2

Housing	598	525	482	-19.4	-18.2

Support	38,743	35,980	38,391	-0.9	+0.1

	________	________	________

	256,813	248,607	258,739	+0.7	+3.1

	________	________	________

Note:

SECTION IV - MAJOR CAPITAL PROJECTS TO BEGIN IN 2004-05

Funds allocated for capital projects to start in 2004-05 include:

		$million

Infrastructure		15,686
-	Reconstruction and improvement of Tuen Mun Road
-	South East Kowloon development related works
-	Improvement to San Tin Interchange
-	In-situ reprovisioning of Sha Tin water treatment works
-	Retro-fitting of noise barriers at selected locations
-	Reconstruction of public piers

Education		2,541
-	Construction of additional primary and secondary schools
-	Multi-media Building, City University of Hong Kong
-	Teaching complex at western campus, Chinese University of Hong Kong

Support		1,464
-	Drainage improvement in East Kowloon, Tsuen Wan, Kwai Chung, Tsing Yi and Northern New Territories
-	Village flood protection in North West New Territories

Economic		764
-	Tsim Sha Tsui Promenade Beautification Project
-	Transport link in Tsim Sha Tsui East
-	Enhancement of public facilities at Ngong Ping, Lantau
-	Enhancement of tourism facilities

Community and External Affairs		681
-	Tseung Kwan O Sports Ground
-	Renovation of libraries

Health		641
-	Construction of a new infectious disease centre attached to Princess Margaret Hospital
-	Provision of additional lifts and associated works at Block S of United Christian Hospital

Environment and Food		607
-	Central, Western and Wan Chai West sewerage, stage 2 phase 2B works
-	General improvement works to markets and cooked food centres
-	Reprovisioning of Diamond Hill Crematorium

Security		106
-	Kowloon Tong fire station-cum-ambulance depot and Kowloon Fire Command Headquarters

SECTION V - TRENDS IN PUBLIC EXPENDITURE : 1999-2000 TO 2004-05

Introduction

This section presents trends in public expenditure over the period 1999-2000 to 2004-05. The analysis includes expenditure by the Government, the Trading Funds and the Housing Authority

2 Details of the individual heads of expenditure contributing to a particular policy area are provided in an index in Volume I of the 2004-05 Estimates. This index further provides details by head of expenditure of individual programmes which contribute to a policy area.

3 Where appropriate, historical figures have been adjusted to comply with the current classification of expenditure.

Recurrent Public Expenditure by Policy Area Group 1999-2000 to 2004-05

Policy Area Groups	Actual				Revised Estimate	Estimate
	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05
	%	%	%	%	%	%
Education	22.0	22.3	22.0	22.2	21.8	22.5
Social Welfare	13.7	13.8	13.8	14.8	15.2	15.4
Health	15.3	15.4	15.2	15.3	14.8	13.9
Security	12.3	12.0	11.7	11.5	11.4	10.9
Housing	6.0	5.8	5.8	5.4	5.5	5.9
Infrastructure	5.5	5.4	5.4	5.4	5.3	5.2
Economic	5.2	5.2	5.1	5.0	5.1	5.0
Environment and Food	4.2	4.0	3.9	4.0	3.9	3.7
Community and External Affairs	3.6	3.4	3.4	3.5	3.4	3.2
Support	12.2	12.7	13.7	12.9	13.6	14.3
	100.0	100.0	100.0	100.0	100.0	100.0

	$m	$m	$m	$m	$m	$m
Total Recurrent Public Expenditure	195,272	198,619	210,445	211,728	214,460	218,805

Total Public Expenditure by Policy Area Group 1999-2000 to 2004-05

Policy Area Groups	Actual				Revised Estimate	Estimate
	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05
	%	%	%	%	%	%
Education	18.7	19.2	19.4	20.8	20.7	20.8
Social Welfare	10.2	10.5	11.2	12.3	12.2	12.4
Health	11.8	12.2	12.7	12.6	12.4	11.5
Infrastructure	8.5	8.6	9.3	9.3	9.4	10.6
Security	9.6	10.0	10.2	10.3	9.8	9.5
Housing	17.0	15.9	11.9	9.1	10.0	8.6
Economic	4.6	4.7	5.1	5.2	5.6	5.8
Environment and Food	4.6	4.2	4.1	4.3	4.0	4.4
Community and External Affairs	3.4	3.1	3.1	3.1	3.0	3.0
Support	11.6	11.6	13.0	13.0	12.9	13.4
	100.0	100.0	100.0	100.0	100.0	100.0

	$m	$m	$m	$m	$m	$m
Total Public Expenditure	269,484	267,507	269,359	263,520	279,183	285,974

SECTION VI - KEY TO CLASSIFICATION OF EXPENDITURE

Index Of Policy Area Groups

Policy Area Group	Description by Policy Area	Reference (Note)
Community and External Affairs	District and Community Relations	19
Community and External Affairs	Recreation, Culture, Amenities and Entertainment Licensing	18

Economic	Air and Sea Communications and Logistics Development	3
	Commerce and Industry	6
	Employment and Labour	8
	Financial Services	1
	Information Technology and Broadcasting	17
	Manpower Development	34
	Posts, Power, Competition Policy and Consumer Protection	4
	Public Safety	7
	Travel and Tourism	5

Education	Education	16

Environment and Food	Environmental Hygiene	32
	Environmental Protection and Conservation	23
	Agriculture, Fisheries and Food Safety	2

Health	Health	15

Housing	Housing	31

Infrastructure	Buildings, Lands and Planning	22
	Transport	21
	Water Supply	24

Security	Immigration Control	10
	Internal Security	9
	Administration of Justice	12
	Anti-Corruption	13
	Legal Administration	11
	Legal Aid	20

Social Welfare	Social Welfare	14
	Women's Interest	33

Support	Central Management of the Civil Service	26
	Complaints Against Maladministration	30
	Constitutional Affairs	28
	Intra-governmental Services	27
	Revenue Collection and Financial Control	25
	Support for Members of the Legislative Council	29

Note:

The Policy Area Reference corresponds with that used in the Index of Policy Areas in the Estimates of Expenditure.

APPENDIX C

GLOSSARY OF TERMS

Note: Terms shown in bold italic are defined elsewhere in the glossary.

Capital expenditure.

This comprises all expenditure charged to the Capital Works Reserve Fund (including interest on government bonds), Disaster Relief Fund, Loan Fund, Innovation and Technology Fund and Lotteries Fund plus Capital Account expenditure from the General Revenue Account. It excludes transfers between General Revenue Account and the Funds, and advances and equity investments made from the Capital Investment Fund.

Capital revenue.

This comprises all revenue credited to the Funds (funds revenue) and the exceptions credited to the General Revenue Account as listed under operating revenue. It excludes Land Fund investment income and transfers from General Revenue Account.

Consolidated surplus/deficit.

The difference between Government revenue and Government spending.

Fiscal reserves.

The accumulated balances of the General Revenue Account and the Funds, including the government bonds issuance.

Funds revenue.

All receipts, except transfers from General Revenue Account, which are credited directly to the Funds. These mainly comprise-

Capital Investment Fund

repayments received
dividends
interest on loans
interest on balances

Capital Works Reserve Fund

donations for projects
land premia
investment income
recovery from MTR Corporation Limited
recoveries from Trading Funds
net proceeds from offering of government bonds

Civil Service Pension Reserve Fund

investment income

Disaster Relief Fund

investment income

Innovation and Technology Fund

loan repayments received
investment income

Land Fund

investment income

Loan Fund

loan repayments received
interest on loans
interest on balances

Lotteries Fund

loan repayments received
share of proceeds from the Mark Six Lottery
investment income

Funds spending.

Expenditure charged to Capital Works Reserve Fund including interest on Government bonds, Capital Investment Fund, Disaster Relief Fund, Loan Fund, Innovation and Technology Fund and Lotteries Fund, but excluding transfers from the Funds.

General Revenue Account expenditure.

All expenditure charged to General Revenue Account in accordance with the Appropriation Ordinance whether operating or capital in nature, excluding transfers to the Funds.

General Revenue Account revenue.

All receipts credited to any of the revenue heads, excluding transfers from the Funds.

Government expenditure.

The aggregate of operating expenditure and capital expenditure. It is not the same as public expenditure.

Government revenue.

The aggregate of Funds revenue and General Revenue Account revenue.

Government spending.

The aggregate of government expenditure and advances and equity investments made from the Capital Investment Fund.

Operating expenditure.

All expenditure from General Revenue Account charged to any of the subheads listed in the Estimates under the Operating Account.

Operating revenue.

This comprises Land Fund investment income and all receipts to be credited to General Revenue Account under any of the following revenue heads, namely-

Duties

General Rates

Internal Revenue

Motor Vehicle Taxes

Fines, Forfeitures and Penalties

Royalties and Concessions

Properties and Investments

Loans, Reimbursements, Contributions and Other Receipts (excluding transfers from Funds)

Utilities

Fees and Charges

It does not include the following items which are treated as capital revenue-

disposal proceeds of government quarters and other assets

estate duty

taxi concessions

recovery from Housing Authority

donations

repayment of loans and advances

Operating surplus/deficit.

The difference between operating revenue and operating expenditure.

Public expenditure.

Government expenditure plus expenditure (recurrent and capital) by the Trading Funds and the Housing Authority.

Contents


2004\| Important notices	Last revision date : 10 March, 2004