LegCo Secretariat releases Research Brief on "The 2017-2018 Budget"
The Legislative Council Secretariat (the Secretariat) today (March 29) released a Research Brief on "The 2017-2018 Budget", reviewing the developments of public finance in Hong Kong over the past two decades after reunification with the Mainland.
The Financial Secretary delivered his 2017-18 budget speech on February 22 and forecast a fiscal surplus of HK$16.3 billion. Moreover, the accumulated fiscal reserves reaches a record high of HK$936 billion in March 2017, equivalent to 24 months of government expenditure.
Fiscal landscape in Hong Kong has stayed broadly the same over the past two decades, with five major sources, namely profits tax, salaries tax, land premium, stamp duties and general rates, accounting for about 71 per cent of overall government revenue in 2016-17. While there are concerns over the "narrow tax base" and "volatile revenue sources", Hong Kong manages to achieve fiscal surplus for 13 consecutive years since 2004-05, without specific measures introduced to diversify revenue sources.
Public expenditure has increased by a cumulative 113 per cent in 20 years to HK$501 billion in 2016-17, faster than the 99 per cent growth in government revenue and overall consumer price inflation of 25 per cent. Infrastructure, education, social welfare, health and housing are the five major items, taking up 68 per cent of the overall public expenditure in 2016-17.
Hong Kong is renowned for its strong fiscal discipline. Fiscal surplus has accumulated by a total of HK$561 billion over the past two decades, against conservative budget forecasts. Nevertheless, there are public concerns over service gaps in certain policy areas. For example, there are long queues for public rental housing, medical services and social welfare services. Moreover, due to insufficient subsidized places, about half of secondary school leavers meeting entry requirements cannot pursue the undergraduate studies at the publicly-funded universities.
There was a general pattern for the Government to spend less than that was budgeted in each year over the past two decades, averaging at about HK$17 billion or 5 per cent of actual expenditure per annum. Continued under-spending was seen in many policy areas, including education, social welfare and housing.
Over the past 20 years, the Government attained fiscal surplus in 15 years totaling at HK$757 billion, far more than the combined deficit of HK$196 billion seen in the other five years. For those surplus years, the various Financial Secretaries had originally made a conservative forecast of combined deficit of HK$49 billion. Upon closer analysis, 75 per cent of the projection discrepancy in these 15 surplus years was attributable to "under-estimation of revenue", and the rest of 25 per cent to "under-spending".
As to the larger-than-expected fiscal surplus, about half of the fiscal surplus over the past 10 years was returned to the community through one-off relief measures. While two-thirds of this relief was for tax refunds, 16 per cent was for assistance of grassroots families.
While the size of fiscal reserves has been surging over the past 20 years, the annual rate of its investment yield has fallen steadily from 9.4 per cent to 3.3 per cent in recent years, resulting in smaller contribution of investment income to overall government revenue.
The Legislative Council will resume the Second Reading debate on the Appropriation Bill 2017 at its meeting of April 12, 2017 and Members will speak on the Bill.
This is the third issue of the Research Brief for 2016-2017 prepared by the Secretariat's Research Office of the Information Services Division with a view to enhancing information support for Members. It is a concise summary aiming at explaining a subject matter which may be of interest to Members and the general public.
The Research Brief is now available on the Legislative Council Website at www.legco.gov.hk/research-publications/english/1617rb03-the-2017-2018-budget-20170329-e.pdf.
Ends/Wednesday, March 29, 2017
Issued at HKT 19:20
Issued at HKT 19:20