Purpose

In response to request from the LegCo Panel on Financial Affairs, this note explains arrangements for the Financial Secretary's consultations with LegCo Members on the 2000-01 Budget which were referred to in the Secretary for the Treasury's letter of 14 July 1999 to all Members of LegCo.

Background

2. It has been an established practice for the Financial Secretary (FS) to consult LegCo Members when drawing up the Budget. These consultations are an important part of the budgetary process to ensure that proposals in the Budget are in line with the community's needs and priorities.

3. Hitherto, FS's consultations with Members took place in two stages -- expenditure first, revenue later. This largely reflects the government budgetary process and in particular, an internal annual Resource Allocation Exercise (RAE) on allocating new money for major initiatives. In the past, during the first round of consultations in May/June, the Administration received views of Members on expenditure priorities upon which we conducted the RAE. We then consulted Members on revenue measures in October/November. Members' views would then be considered when the Administration drew up the revenue measures. Although the consultation process follows roughly this pattern, the exact timing and format of those consultations do vary to suit the practical needs of each year's circumstances. For example, in some years the FS conducted an overall presentation to all Members before meeting with groups of Members for discussion. Last year, presentations were made during each meeting session with Members. Members' practice and reactions to past years' arrangements also differed. Whilst some Members presented their detailed submissions during the meeting with the FS, others took note of the presentation by the Administration and the preliminary exchange of views and chose to put in their written views later.

Arrangements for the 2000-01 Budget Consultations

4. In working out the most effective way to consult Members on the 2000-01 Budget, we have taken into account a number of considerations. Before explaining those considerations, we wish to reiterate that there is no change whatsoever in the importance we attach to consultations with LegCo Members in drawing up the Budget. These consultations are serious and sincere and, as explained below, we wish to engage Members in discussion on the various facets to the Budget in a more integrated manner.

5. As Members will appreciate, the Basic Law requires that in drawing up budgets, we must follow the principle of keeping expenditure within the limits of revenues, strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product. The FS detailed in his 1999 Budget Speech the budget strategy for 1999-2000 and in the medium term, paying due regard to the needs of Hong Kong against the economic circumstances. He has stressed the need to redress the imbalance between the growth in government expenditure in 1998-99 and 1999-2000 and the contraction in the economy over the same period as well as to return to a fiscal balance in the medium term. Seen against these requirements, the interaction between expenditure and revenue proposals has become more relevant. It would not be entirely appropriate for us to seek Members' views separately on expenditure and revenue as if the two are independent of each other.

6. As a means to redress the imbalance mentioned above, the FS made it clear in his 1999 Budget Speech that we would need to maintain a certain degree of restraint over the growth in expenditure in 2000-01 and a few years thereafter. For the time being, we are still adopting a trend growth rate of 3.5% within the Medium Range Forecast and are planning on the basis of an expenditure growth of 3% for 2000-01. As Members will recall, even when 5% growth was adopted in the past, the amount of unallocated new money available for allocation to new service initiatives was limited. About 3% to 4% of increased spending was taken up by earmarked growth to meet past pledges in service improvements and expansion and anticipated increases in statutory or quasi-statutory requirements such as social security. Despite savings to be attained in 2000-01 under the Enhanced Productivity Programme (EPP), the 3% expenditure growth allowed for 2000-01 is inevitably committed to meet earmarked growth. As such, there are very limited funds available for allocation and the normal internal RAE process for recurrent expenditure has been dispensed with this year. The question of the Administration taking major expenditure decisions on new initiatives without consulting with Members therefore does not arise.

7. The above said, we are vigorously re-examining the level of earmarked growth and pushing ahead with EPP to try to find some spending capability on new initiatives. Specifically therefore, we have invited Members to give us ideas on areas for savings. Members' views on expenditure in response to our letter of 14 July 1999 and subsequently expressed in meetings with the FS will be considered in this context.

8. This year's arrangements are also in a way a positive response to Members' comments on previous occasions such as -

1. the Administration's introductory presentation had taken up too much time at the meetings with the FS, leaving little time for discussion and exchange of views;
   
   
2. the presentational materials should be provided to Members in advance of the meetings, instead of after FS had met with all Members; and
   
   
3. the consultation process should make allowance for Members to consult their constituents.

We have structured the process in a manner to provide Members with sufficient time and background materials to consult their constituents. For example, for the first time, we have made available in advance of FS's meetings with Members the usual briefing materials. We have put together a more comprehensive pack covering the economic and fiscal background and a more detailed analysis of past spending. The information is presented in the form of charts and explanatory notes, which Members may readily share with their constituents. We have distributed the information almost three months ahead of the meetings with the FS which we hope would suit Members' plan to consult with their constituents.

Conclusion

9. We have already confirmed, through the LegCo Secretariat, the FS's meeting dates with Members. There are a total of nine sessions which will take place from 11 to 29 October 1999.

10. We are receptive to Members' suggestions on how future consultations should be conducted. We will take note of Members' comments at the Panel meeting in order to make continuous improvement to the consultation process.


Finance Bureau
September 1999