8.     As our economy put in a strong performance last year, revenue from various sources was higher than expected.

9.    For the Consolidated Account, I estimate that a surplus of $12 billion will be achieved in 2004?5, equivalent to 0.9 per cent of Gross Domestic Product (GDP).  This is the first time since 1999?000 that the Consolidated Account has recorded a surplus, and is mainly due to lower-than-expected expenditure and higher-than-expected revenue this year, capital revenue in particular.  For example, land premiums amount to $31.3 billion, more than two and a half times the original estimate.  Operating revenues such as salaries tax, profits tax and stamp duty are also higher than expected, with increases in these items ranging from 9 to 40 per cent.

10.    I must, however, stress that the main reason for the surplus is that revenue from land premiums is far greater than expected.  As such revenue is volatile and is affected by a number of factors, we cannot rely too heavily on it to fund operating expenditure.  Moreover, the sums raised by issuing bonds in 2004?5 will have to be repaid.  Discounting the proceeds from bond issuances, the Consolidated Account will still record a deficit of $13.4 billion.

11.    As far as the Operating Account is concerned, I am pleased to announce that operating expenditure for 2004?5 will be lower than that for 2003?4.  Barring two special accounting arrangements with the former municipal councils, this is the first time in over 50 years that operating expenditure has fallen.

12.    This demonstrates that the various control measures taken by the Government are gradually producing results.  These include reduction in the civil service establishment, adjustments to civil service pay, reprioritisation of service provision, structural reorganisation and streamlining of procedures.  I am grateful for the joint efforts of Directors of Bureaux and my colleagues in the civil service.  This also shows that our civil service has the flexibility to try new approaches and has striven to reduce operating expenditure while maintaining a quality service.  The operating deficit for 2004?5 is forecast to be $14.1 billion, much lower than the $46.6 billion originally estimated.

13.    Despite the fact that people's incomes decreased and deflation persisted in the wake of the Asian financial crisis, the Government's operating expenditure continued to soar.  I know that members of the public are unhappy about this.  Last year, I pledged that the Government would first cut down on spending in order to demonstrate our readiness for action.  One year later, we have succeeded in checking the trend of our operating expenditure, which had been on the rise for over 50 years.  This clearly demonstrates that we have the determination and capability to contain our spending.

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