| Consolidated
and Operating Balances
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| 57.
Government revenue and
expenditure can be measured on two levels.
One is the Consolidated Account, which comprises all revenue and
expenditure, including recurrent and capital revenue and expenditure.
The other is the Operating Account, which, put simply, includes
only recurrent revenue and expenditure.
It is important to achieve a balance in both accounts, but for
investors and international rating agencies, the operating balance
sometimes is even more important.
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| 58.
Investment income from
the fiscal reserves has been a major source of revenue for the Operating
Account, contributing on average 13% in each of the past four years.
This income source is expected to decrease as a result of the
declining fiscal reserves and the lower return on their investment.
Accordingly, we should focus not only on the deficit or surplus
after taking investment income into account, but also on that before its
inclusion. Let me illustrate this point with reference to daily family
financial management. The
recurrent revenue of the Government can be compared to the wage income of
a family, the fiscal reserves to a bank deposit, and investment income to
interest earnings. Generally
speaking, a family's operating account is balanced when the wage income
is adequate to cover its daily expenses.
If a family has to draw on interest earnings to meet its daily
expenses, then it has to be very much on the alert because interest
earnings, being susceptible to interest rate movements, are not stable.
If its income is insufficient to cover daily expenses and the
family has to draw on the principal of the deposit, I am afraid that it
will have to survive on debt once the deposit is depleted.
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| 59.
In seven out of the
past ten years, the Government has run a capital account deficit.
Capital expenditure is mainly on infrastructural projects, and is
principally funded by land premiums.
As Hong Kong's property sector undergoes consolidation, land
premiums in future will likely be inadequate to meet capital expenditure.
Although the Government can sell some of its assets, this cannot
provide a stable source of revenue in the long term.
Therefore, to ensure consolidated balance, we need to achieve
surpluses in the Operating Account over the longer term to finance a part
of capital expenditure.
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| 60.
We have had operating
deficits for four consecutive years since 1998-99. In three of the past five years, the Consolidated Account has
also recorded a deficit. This
cannot go on forever. My
target is to achieve consolidated and operating balances by 2006-07.
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|
Chart 4 Four consecutive years of operating deficits |
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