Philosophy

Q1.What is the HKSARG's philosophy of financial management?

• We believe in prudent financial management. Our key principles are: to live within our means; to strive for a balanced budget; to ensure that the percentage growth in government spending does not exceed thate percentage growth in GDP; keep a low, simple and predictable tax regime. These principles have been enshrined in the Basic Law.

Q2.Why are these principles important to Hong Kong?

• These principles enable the Government to maintain solid financial fundamentals which are essential for the continuous prosperity of Hong Kong and for maintaining confidence of the international community.

Q3. What is Government's fiscal position in recent years?

• Government's fiscal position in terms of the overall budget surplus/deficit and fiscal reserves accumulated are as follows:

Q4. How are the fiscal reserves accumulated?

• Whenever we have achieved a budget surplus for a financial year, the surplus amount will be saved as fiscal reserves. When there is a budget deficit, money will be drawn out from the fiscal reserves to cover the difference between expenditure and revenue for that year.

Q5. Do these fiscal reserves yield any income?

• Yes, the fiscal reserves are placed within the Exchange Fund and share the investment return made by the Fund. This investment return is a source of Government revenue.

Q6. Why do we need to keep over $400 billion of fiscal reserves? Why not spend some of the reserves to meet the needs of the community?

• The fiscal reserves serve important functions. We need to keep the fiscal reserves at a satisfactory level to meet the cash flow needs of the Government in its day to day operation; to cope with contingencies arising from any downswing in the economic cycle and from unforeseen external events; and to underpin the stability of the exchange rate for the purpose of enhancing monetary stability.

• Bearing in mind the above purposes, we consider that an appropriate level of fiscal reserves for any particular year would be the sum of the Hong Kong Dollar money supply under the M1 definition and 12 month's government expenditure, allowing a range of plus or minus 25%.

Q7. What is the difference between overall deficit and operating deficit?

• An overall deficit means that Government's total expenditure in the year has exceeded total revenue. All recurrent and non-recurrent elements in the annual budget are counted. Broadly speaking, an operating deficit means that Government's recurrent spending has exceeded recurrent income. The latter is important in that it reflects the financial position of the Government in its day to day operations.

Q8. There have been successive years of consolidated operating deficit. Is HK having a structural deficit problem?

• We do not know yet. A Task Force headed by the Secretary for the Treasury is reviewing our public finances to etermine whether the projected successive operating deficits are cyclical or structural in nature.

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