| Medium
Range Forecast: Restoring Fiscal Balance
|
| 2001-02
Outturn
|
| 63.
Let me now elaborate
on the Government's plan to solve the deficit problem in the medium
term. First, I forecast a
consolidated deficit of $65.6 billion for 2001-02 (equivalent to 5.2% of
GDP), far larger than the original estimate of $3 billion.
This is due mainly to revenue from land premiums and investment
income from our fiscal reserves falling far short of our original
forecasts. Furthermore, the
secondary offering of Mass Transit Railway shares originally planned for
this financial year has been postponed to the next because of changes in
investment market conditions. I
estimate the fiscal reserves to be $369.8 billion by 31 March this year,
roughly equivalent to 19 months of government expenditure.
|
| Restoring
Fiscal Balance Step by Step
|
64. Earlier, I set three targets for our public finances in 2006-07 -
-
first, restore balance in the Consolidated Account;
-
second, attain a balanced Operating Account; and
-
third, reduce public expenditure to 20% of GDP or below.
I aim to achieve these
targets step by step through reducing the growth of government expenditure
and modestly raising revenue. I
believe this is a practical strategy commensurate with our economic
condition.
|
| Controlling
Expenditure Growth in Real Terms
|
| 65.
Having regard to the
current state of our economy, I have decided to allow government
expenditure in 2002-03 to grow by 2% in real terms over the original
estimate for 2001-02, or 7.7% over the revised estimate, higher than the
forecast economic growth of 1% in real terms for 2002.
|
| 66.
From 2003-04 to
2006-07, I will reduce the real growth in government expenditure to an
average of 1.5% each year, lower than the forecast economic growth rate.
I believe Hong Kong's economy should have picked up by then and
such a reduction will be necessary to restore fiscal balance in the medium
term.
|
| Civil
Service Pay
|
| 67.
I have mentioned
earlier that it is necessary to control the growth of government
expenditure in money terms. Personnel-related
expenses account for 70% of government operating expenditure. Given our serious fiscal position, I have assumed in the
Medium Range Forecast, for financial planning purposes, that civil service
pay will be cut by 4.75% and the salary-related portions of subventions to
the various organisations will also be reduced by the same rate. This assumed 4.75% pay cut has taken into account the
respective cumulative pay rises for civil servants of different ranks
since July 1997.
|
| 68.
Under the existing
mechanism, the Government will consider, among other things, the results
of the private sector pay trend survey and its own budgetary position
before deciding on an annual civil service pay adjustment.
We will continue to adopt this mechanism and make a final decision
after the outcome of this year's survey is known in May. Any decision on a civil service pay cut needs to go through
the legislative process before it can be implemented. Assuming that the pay cut takes effect from 1 October this
year and that the level of reduction is 4.75%, the Government will achieve
savings of about $3 billion in 2002-03 and about $6 billion in a full
year.
|
| 69.
Last month, I met with
representatives of the civil service central consultative councils and a
number of civil service staff unions.
I appreciate their position. I
believe many colleagues in the civil service and the subvented
organisations understand that we are facing a serious fiscal situation and
that persistent fiscal deficits will adversely affect Hong Kong as a
whole. In fact, many
colleagues told me that they were willing to stand by the rest of the
community in this time of difficulty and share the burden.
|
| Doing
More with Less
|
| 70.
In addition, we will
stringently contain the growth of the civil service in all ranks.
Last year, the Government proposed to reduce the civil service
establishment to around 181 000.
Thanks to the efforts of all departments and grades, we will
achieve this target as scheduled in 2002-03.
|
| 71.
We will also review
the demand for services and our priorities for the deployment of
resources. Departments will
streamline procedures, simplify structures and economise on manpower in
order to release resources to meet additional needs.
Furthermore, we will make use of market forces and strengthen our
co-operation with the private sector to provide better and more efficient
services to the public through various means.
|
| Controlling
Expenditure Growth in Money Terms
|
| 72.
Assuming that civil
service pay is cut from 1 October this year, government expenditure in
2002-03 will increase in money terms by 0.6% over the original estimate,
or 6.2% over the revised estimate, for 2001-02.
Average annual growth of government expenditure from 2003-04 to
2006-07 will be 1% in money terms. With
the foregoing measures for controlling expenditure, I am confident that
public expenditure will fall to 20% of GDP in 2006-07.
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