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Budget Speech by the Financial Secretary (8)

Public Finances in Retrospect and Prospect

155. I shall now give a brief account of the revised estimates for 2011-12 and the estimates for 2012-13.  I shall also review and forecast expenditure in major policy areas.

Revised Estimates for 2011-12

156. The revised estimate for government revenue for 2011-12 is $433.1 billion, $63.4 billion higher than the original estimate.  With the impressive economic performance last year, the revenues from profits tax and salaries tax have increased by nearly $30 billion compared to the original estimate.  To counter the risk of asset-property bubbles, the Government increased land supply by putting additional sites on the market last year since the announcement of the Budget.  The sale of land brought in $83.1 billion, nearly $21.1 billion higher than the original estimate.  For government expenditure, I forecast that the revised estimate will be $366.4 billion, $11.8 billion less than the original estimate.

157. For 2011-12, I forecast an operating surplus of $38.2 billion and a surplus of $66.7 billion in the Consolidated Account, equivalent to 3.5 per cent of GDP.  By March 31, 2012, our fiscal reserves are expected to be $662.1 billion, equivalent to 35 per cent of GDP or 22 months of government expenditure.
Estimates for 2012-13

158. Operating expenditure for 2012-13 is estimated to be $315 billion, an increase of six per cent over the revised estimate for 2011-12.  Recurrent expenditure will be $264.3 billion.  Capital expenditure will be $78.7 billion, including an all-time high of $62.3 billion on capital works.  Taking into account operating and capital expenditure, I forecast that government expenditure will reach $393.7 billion, an increase of seven per cent compared with the revised estimate for 2011-12.  Public expenditure will be equivalent to 21.4 per cent of GDP.

159. I estimate that total government revenue for 2012-2013 will be $390.3 billion.  Earnings and profits tax, estimated at $161.6 billion, will still be our major source of revenue.  Land revenue is estimated at $60 billion.

160. Taking all these into account, there will be a small deficit in our accounts in the coming years, and will largely achieve fiscal balance.  I forecast a deficit of $2.5 billion in the Operating Account and a deficit of $0.9 billion in the Capital Account.  There will be a deficit of $3.4 billion in the Consolidated Account.  Fiscal reserves are estimated at $658.7 billion by end-March 2013, representing approximately 34 per cent of GDP or equivalent to 20 months of government expenditure.  In this highly uncertain global economic climate, we will hand over a healthy set of accounts to the next Government.
Government Expenditure

161. Government expenditure is estimated to increase from more than $230 billion in 2007-08 to more than $390 billion in 2012-13, a rise of nearly 70 per cent, which is significantly greater than the nominal GDP growth of 21 per cent over the same period.  Recurrent expenditure is estimated to grow by 33 per cent during this period.

162. The allocation of resources by the Government is based on the principle of "policy leads and financial resources follow".  A major function of the Budget is to provide funding for the implementation of the policy objectives and initiatives announced in the Policy Address.  I shall now give an account of government expenditure on education, health, social welfare, art, culture and sports, environmental protection and infrastructure.


163. Education is a matter of public concern.  For individuals, it is a pathway to knowledge; for parents, it is a road to success for their children about which they are most concerned.  Equipping our younger generation to achieve their full potential in a knowledge-based economy, education is also the golden key to promoting social mobility.

164. Education is the policy area which has always taken up the largest share of recurrent government expenditure.  Recurrent expenditure in 2012-13 is nearly $60 billion, a jump of 28 per cent compared with 2007-08.

165. In the past few years, we have implemented a number of important education policies.  On pre-primary education, we launched the Pre-primary Education Voucher Scheme in the 2007/08 school year to provide direct subsidy for parents amid the diversified development in pre-primary education.  At present, over 80 per cent of kindergarten parents choose to enrol their children in schools participating in the Scheme.  In the 2010/11 school year, the Scheme benefited a total of 120 000 school children with subsidies amounting to $2 billion.  We also provide school fee remission under the Kindergarten and Child Care Centre Fee Remission Scheme to ensure that children will not be deprived of the opportunity for kindergarten education due to lack of means.

166. We notice that there are calls from the community for free pre-primary education.  We recognise the importance of pre-primary education and have allocated substantial resources to it.  The issue is not solely a question of resources.  More importantly, we must first analyse where the existing system is inadequate, and identify appropriate changes.  The Education Bureau will maintain dialogue with stakeholders and seek the views of different sectors to enhance the quality of pre-primary education.

167. During the past few years, we have been increasing recurrent expenditure on primary and secondary education.  The Government extended free education to 12 years in 2008, incurring an additional annual expenditure of $1.2 billion.  We have introduced small-class teaching in primary schools progressively since 2009.  More teaching staff and resources are required due to the increased number of classes, and the estimated additional expenditure will reach $2.1 billion a year.  We also started to reduce in phases the number of students allocated to each Secondary 1 class from 38 to 34.  It is estimated that the additional expenditure involved will reach $1.4 billion a year.  In 2009, we implemented the new senior secondary academic structure and enhanced the ratio of graduate teacher posts in public sector primary and secondary schools.  These measures are expected to involve an additional expenditure of $1.6 billion a year.

168. With regard to post-secondary education, we estimate that, by the 2014/15 academic year, over one-third of the relevant age cohort will have the opportunity to pursue degree-level education.  If sub-degree places are also counted, over two-thirds of our young people in the relevant age group will have access to post-secondary education.  To facilitate the further development of post-secondary education, I have mentioned earlier that we shall provide $1 billion to implement a new Project Yi Jin, $2.5 billion to launch the sixth Matching Grant Scheme and $2 billion to establish more scholarships.

169. We shall also continue our two-pronged strategy to promote the parallel development of the publicly-funded sector and self-financing sector.  Apart from allocating $1 billion annually for increasing the number of first-year first-degree and senior year undergraduate places funded by the University Grants Committee, the Government also provides a series of support measures to promote the development of the self-financing post-secondary sector.  These measures include land grant at nominal premium, start-up loans, quality enhancement grants and accreditation grants.  Last November, we also set up the $2.5 billion Self-financing Post-secondary Education Fund to offer scholarships to students and provide support to institutions to enhance the quality of education.

170. Our established policy for student financial assistance is to ensure that no student will be denied access to education due to lack of means.  In the 2010/11 academic year, the Student Financial Assistance Agency (SFAA) disbursed grants and loans of over $4.6 billion under various financial assistance and loan schemes, benefiting more than 360 000 students or one-third of the total number of full-time students.

171. To give greater support to students from low-income families, the Government introduced various measures in the 2011/12 academic year, including relaxing the income ceiling for full level of assistance under the means test mechanism, adjusting the tiers of assistance, increasing school textbook assistance, enhancing the Examination Fee Remission Scheme and the Kindergarten and Child Care Centre Fee Remission Scheme, etc.  The subsidy disbursed to each secondary or primary student who benefit from these measures will increase by 30 per cent to $5,000 a year on average, and the average grant per post-secondary student is also expected to increase by nearly 20 per cent to $38,000.  It is estimated that the amount of grants and loans disbursed by the SFAA in the 2011/12 academic year will increase by $800 million to more than $5.4 billion.

172. The Government commenced the Phase 2 public consultation on the Review of Non-means-tested Loan Schemes for post-secondary students in November last year.  Proposals put forward include measures seeking to ease the repayment burden of student loan borrowers.  If the proposals are supported by the public, the Government will implement them in phases starting from the next academic year.  The Education Bureau will also review the interest rate mechanism for the means-tested living expenses loans and launch improvement measures in the next academic year.


173. Next to education, health care is an area of great public concern.  In the past few years, the Government has provided additional resources to improve health care services.  The recurrent expenditure on health care will be almost $45 billion in 2012-13, an increase of over 40 per cent when compared with 2007-08.  The amount of recurrent funding allocated to the Hospital Authority will also increase by nearly 40 per cent to $40 billion in 2012-13.  In the coming year, $2.2 billion will be allocated to meet expenditure on hospital projects, and $500 million to acquire and upgrade medical equipment for public hospitals.

174. We have been continuously upgrading public health care facilities and specialist services through the provision of additional resources.  In 2012-13, the Hospital Authority will increase its in-patient service capacity and strengthen its neonatal intensive care service.  It will provide haemodialysis and peritoneal dialysis services for an additional 120 renal patients, provide risk factor assessment and management services for 84 000 diabetic and hypertensive patients, and set up eight new teams to take care of an additional 33 600 hypertensive patients.  Moreover, the Hospital Authority will extend the coverage of its community-based case management programme for patients with severe mental illness to four more districts, and enhance its care for hospitalised mental patients by providing multi-disciplinary treatment.  With additional resources, the Government is also taking forward health care service reform initiatives in a progressive manner.  These initiatives include enhancing primary care, encouraging public-private partnership, implementing hospital accreditation, and developing a territory-wide electronic health record sharing system.

175. In the past five years, the number of full-time medical staff of the Hospital Authority increased by more than 10 per cent to 60 000 in 2011-12, including the addition of some 300 doctors and 1 800 nurses.  Looking ahead, we need to recruit yet more medical staff.  Apart from increasing the provisions for medical services, we shall allocate $200 million to increase the number of first-year first-degree places in medicine by 100, nursing by 40 and allied health professions by 146.

176. At the same time, we shall take forward health care reform through three initiatives, i.e. reviewing the health care manpower strategy, facilitating health care service development, and formulating a regulatory framework and operational details for the Health Protection Scheme (HPS).  We expect to put forward specific proposals in the first half of 2013, and shall finalise the implementation arrangements and proceed with the necessary legislative process as soon as possible.  I have earmarked $50 billion for providing the funding and appropriate financial incentives needed to support the healthcare financing arrangements.

Social Welfare

177. Recurrent government expenditure on social welfare for 2012-13 is estimated at $44 billion, representing an increase of $10 billion, or nearly 30 per cent, when compared with $34 billion for 2007-08.

178. To cope with an ageing population, the Government has allocated substantial resources to various elderly services in recent years.  In line with the Government's elderly policy which regards "ageing in place as the core, institutional care as back-up", we have allocated funds to provide 2 000 additional places of community care services, including 1 500 places for the Enhanced Home and Community Care Services and 500 day care places, from 2007-08 to 2011-12.  For the coming year, I propose to increase recurrent funding by $36 million for the provision of an additional 500 places for the Enhanced Home and Community Care Services and some 180 day care places.  There will also be a breakthrough in the current funding and operation model for subsidised services as Government plans for a pilot scheme on community care service voucher for the elderly.  Under the scheme, subsidy will be provided directly to eligible elders for them to choose the services they need.

179. While encouraging "ageing in place", the Government will continue to devote additional resources to upgrading residential care services and providing more residential care places.  In the past five years, we have allocated funds to provide 3 600 additional subsidised residential care places.  From 2011-12 to 2014-15, more than 2 600 additional subsidised residential care places will come on stream.

180. Last year's Policy Address announced the provision of public transport concessions for the elderly and eligible people with disabilities to travel on the general MTR lines, franchised buses and ferries at a concessionary fare of $2 a trip.  The Government is discussing the details of and specific arrangements for the concession scheme with the public transport operators concerned and the Octopus Cards Limited, with a view to launching the concession scheme in 2012-13.

181. Apart from providing funding for elderly services, we have also devoted substantial resources to supporting other people in need.  We have strengthened rehabilitation services and support services to children, youngsters and families.  On rehabilitation services, we have enacted the Residential Care Homes (Persons with Disabilities) Ordinance to bring the licensing scheme for residential care homes for persons with disabilities (RCHDs) into operation.  We have also introduced certain complementary measures, which include providing $70 million for the implementation of a pilot Bought Place Scheme for private RCHDs and $39 million for the Financial Assistance Scheme.  The aim is to encourage private RCHDs to upgrade their service standards and provide them with subsidies for improvement works.

182. In 2010, we allocated $135 million as well to set up Integrated Community Centres for Mental Wellness across the territory for the provision of district-based and one-stop services.  Additional funding totalling $48 million for 2011-12 and the coming year has been made available to strengthen the manpower of these centres to dovetail with the Case Management Programme of the Hospital Authority and provide services for more people in need.

183. On support services to children and families, we shall provide 130 additional places for residential child care services in phases and raise the foster care allowance for foster families.  In addition to the Integrated Family Service Centre established in Sham Shui Po last year, another three centres will be set up in districts with greater service demand, bringing the total number of such centres to 65.  The total annual expenditure of these measures is estimated to be about $68 million.

184. On youth services, to reach out to more youths at risk, we shall set up three more youth outreaching teams, one each in Tseung Kwan O, Ma On Shan and Tung Chung.  With the additional teams, we can counsel them and refer them to other mainstream services.  This will incur additional annual funding estimated at $12 million.

(To be continued)

Ends/Wednesday, February 1, 2012
Issued at HKT 12:57


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