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A higher than estimated spending of $1.1 billion from the Capital Works Reserve Fund in 1998-99 reflects the stated commitment of the Government to bring forward capital works projects to boost the economy and relieve unemployment.

In response to the comment by the Hong Kong General Chamber of Commerce's Chief Economist's view on the Government's final accounts for the 1998-99, a Government spokesman stressed that there was no under-spending in capital works.

"On the contrary, total spending under the Capital Works Reserve Fund in 1998-99 had exceeded the revised estimate at the time of the Budget in March 1999 by $1.1 billion. This unusually robust spending performance reflects the Government's efforts to expedite works programmes to boost the economy and to create employment," the spokesman said.

He continued to say that the lower capital spending of $3.2 billion referred to non-works capital spending in loans and major plant and equipment as well as other one-off items. For example, in respect of the Special Finance Scheme for Small and Medium Enterprises which has a total approved commitment of $2.5 billion, we have budgeted for drawdown of loan guarantees of up to $1.5 billion in 1998-99 so that eligible applicants would be able to receive assistance as and when needed.

"As it turned out, at the close of the financial year, payments of only $164 million had been made under the Scheme, while total loans guaranteed by the Government amounted to $738 million," the spokesman explained.

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"The Government has taken prompt action to review the Scheme to improve its assessibility to SMEs. On April 23, 1999, the Finance Committee approved improvements to the Scheme, including revising the risk-sharing ratio between the Government and the lender from 50 : 50 to 70 : 30. Signs show that the Scheme has since become more popular among the SMEs," the spokesman added.

"Amongst the major plant and equipment items for which actual expenditure in 1998-99 was considerably less than expected was procurement of replacement helicopters for the Government Flying Service (which accounted for $200 million of the under-spending). They are high-value imported plant and equipment which have minimal impact on local economic activity," he said.

"It should be distinguished that lower than anticipated spending on one-off capital items in one year is no more than deferred cash payments. It does not give rise to permanent savings which may be redeployed elsewhere," the spokesman explained.

As far as the 10 per cent tax rebate is concerned, the spokesman pointed out that it was not forecast to cost $8.5 billion in 1998-99. "The total cost of $8.5 billion was expected to be spread over two financial years, with a cost of $7.8 billion in 1998-99 and $0.7 billion in 1999-2000," he said.

The spokesman continued to say that criticisms about persistent gross under-estimate were unfair and had overlooked the circumstances at the time. For example, the quoted figure of combined budget surpluses over the last 10 years of $170 billion included an exceptional surplus of $86.9 billion in the year 1997-98 due to the booming stock and property markets.

As far as the current year is concerned, there is a deficit in the first two months of $17.9 billion.

"In total, this is in line with our expectations based on the deficit of $36.5 billion forecast in the Budget," the spokesman said.

"There are of course ups and downs, particularly on the revenue side. There has indeed been a pick-up in stock market turnover but revenue collections in general remain at the level anticipated."

"Forecasting cannot be an exact science," the spokesman said. "Hong Kong's stock and property markets are particularly volatile. Estimating the proceeds from land sales and stamp duties before the close of the financial year can never be wholly accurate. Yet these two areas alone have been, over the years, responsible for much of the difference between our forecasts and the actual results."

"Any variation in the resultant annual surplus or deficit must be set in the context that Government annual revenue and expenditure together are in the order of $450 billion," he added.

The final account gazetted yesterday (Friday) was the final figures for the year 1998-99. In accordance with the International Monetary Fund's data dissemination standards, the Government had in fact already published provisional figures showing a $23.3 billion deficit for 1998-99 on April 30, 1999. Any allegation that the release of an improved deficit situation for 1998-99 has been withheld is totally groundless.

End/Saturday, July 10, 1999

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