Medium Range Forecast
194. For the medium term, the average growth rate is forecast to be three per cent per annum in real terms from 2019 to 2022, slightly higher than the trend growth rate of 2.7 per cent over the past decade; and the underlying inflation rate is expected to average 2.5 per cent per annum. The medium-term economic forecast has taken into account the impact of an ageing population on economic growth, with the assumption that there are no severe external shocks during the period. That said, as the complicated and volatile political and economic environment around the world may cause fluctuations in the financial markets, and affect Hong Kong's asset prices and economic sentiments, we must remain vigilant.
195. The Medium Range Forecast projects, mainly from a macro perspective, the Government's expenditure requirements from 2019-20 to 2022-23. It is noteworthy that annual expenditure on infrastructure projects will soon exceed $100 billion, but this projection has not fully reflected the expenditure that may be incurred by all the land development, highway and railway projects under planning. Besides, over the medium term from 2019-20 to 2022-23, growth of recurrent government expenditure is estimated to range between 6.1 per cent and 9.7 per cent per annum, consistently higher than the average annual nominal economic growth of five per cent over the same period.
196. Regarding revenue, the land premium estimate for 2018-19 mainly makes reference to the Land Sale Programme and the land supply target of the coming year. From 2019-20 onwards, the medium range forecast on land premium is based on the average proportion of land revenue to GDP over the past decade, which is 3.6 per cent of GDP. I also assume that the growth rate of revenue from profits tax and other taxes will be similar to the economic growth rate in the next few years.
197. Based on the above assumptions, I forecast an annual surplus in the Operating Account for the coming five financial years but a small deficit would surface in the Capital Account in 2021-22. Fiscal reserves are estimated at $1,222.6 billion by the end of March 2023, representing 35.6 per cent of GDP or equivalent to 21 months of government expenditure.
198. Taking all these into account, the Government will have an overall surplus in the next five years. The above forecast has not taken into account the tax rebate and relief measures that the Government may implement from 2019-20 to 2022-23.