Basis for Comparison of Growth in Expenditure and the Economy

54.       Government expenditure and economic growth can be measured in both real and money (or nominal) terms.  In a nutshell, our recurrent revenue and expenditure are accounted for in money terms, whereas "real" is an economic concept, referring to value after discounting price movement.

55.     Price movement in government expenditure does not follow that of the economy.  This is mainly attributable to the higher wage content of government expenditure.  Wages tend to increase faster than the general price level in the economy, which means that the price of government expenditure grows faster than the general price level.  Government expenditure also includes pension and social security payments, and these have not adjusted downwards with the general price level in times of deflation.  The differential between the government expenditure price level and the general price level thus widens further.  Over the past decade, the government expenditure price level has risen by 72% but the general price level only by 29%.  As a result, although in real terms the growth in government expenditure has been broadly in line with GDP growth, it has overshot in money terms.  From 1998-99 to 2001-02, government expenditure recorded a cumulative growth of 17% in money terms, while GDP registered a cumulative fall of 5%.

56.    As both government revenue and expenditure are accounted for in money terms, I shall strive to control the growth of government expenditure in money terms, in addition to controlling it in real terms.