Introduction

Finance Bureau's Policy Objective is prudent management of public finances. We aim to maintain sound and stable public finances and foster a fiscal environment conducive to continued economic growth and success.

2. In pursuing this Policy Objective, we need to ensure that the right balance is struck between meeting public demand for better government services on the one hand, and adhering to our principles of small government and low taxes on the other. To achieve this, we deliver achievements in six Key Results Areas. These, and the progress made so far, as well as the new commitments for the coming year are set out in our Policy Objective booklet which has been distributed to Members. Members may wish to note that of the 26 targets set in 1998, 11 of them have been met, 14 are progressing as scheduled and one, on a proposed government building in Chai Wan, is now under review.

3. This afternoon I wish to say a bit more on two specific aspects -

1. the overall position of Government's finances; and

2. the Enhanced Productivity Programme.

Overall Position of Government Finances

4. Despite the impact of the Asian financial crises on public finance, we have maintained our spending plans in the overall interests of the economy. This has resulted in a deficit of $23 billion in 1998-99 and we have budgeted for a further deficit of $36 billion in 1999-2000. We have been able to meet these deficits by drawing on the reserves which we have accumulated over the years. Although our reserves still stood at a healthy level of $434 billion at 31 March 1999, we cannot continue to draw on our reserves. The Basic Law requires us to strive for fiscal balance. Moreover, in the light of experience during the financial turmoil, there is no need for me to emphasise the importance of having a substantial level of fiscal reserves.

5. The Basic Law also requires us to ensure that government expenditure grows no faster than the economy over time. The graph on page 3 of the Policy Objective booklet shows that the growth rate of government expenditure has exceeded that for the economy. We need to close this gap by exercising strict control over government spending in the coming years.

6. I must stress that this does not mean we will be spending less. On the contrary, we plan to increase government expenditure by 3% in real terms in 2000-01. This means additional spending of $5.4 billion. This amount, together with the EPP savings of $1 billion, means that we are able to spend an extra $6.4 billion and deliver all pledges on new or improved services made in the 1997, 1998 and the 1999 Policy Addresses. Bureau Secretaries have also made efforts to accommodate new initiatives in their 1999 Policy Address booklets through re-deployment of resources.

7. We will continue to invest heavily in our infrastructure. In the five year period from 1999-2000 to 2003-04 we have earmarked expenditure amounting to $170 billion on capital works projects. We will continue with our committed investment projects and embark on new ones which are essential to enhance Hong Kong's competitiveness and sustain longer term growth. We expect to spend over $80 billion in the next five years to 2003-04, under the Capital Investment Fund and the Loan Fund, for railway projects, urban renewal, etc.

8. The Financial Secretary is consulting Members on the 2000-01 budget and we welcome Members' views on priority areas on spending.

Enhanced Productivity Programme (EPP)

9. EPP is proceeding as scheduled. Through improved productivity, bureaux, departments and subvented organisations have achieved productivity gains of $818 million this year. Three-quarters of these are redeployed to provide new or improved services in the year while the remaining one-quarter reflects reduced expenditure. For 2000-01, we are on target to deliver 1% real savings, releasing some $1 billion from existing baseline operating expenditure for meeting earmarked growth and funding new commitments.

10. We will continue to press ahead with EPP and achieve further productivity gains in 2001-02. We are confident that the target of 5% savings by 2002-03 will be achieved.

11. EPP has also brought about noticeable cultural changes in the use of public resources. The public sector, including the subvented sector, is now more conscious of the need to economise and are more ready to adopt innovative approaches to provide services under a reduced growth environment, for example, delivering services through savings achieved by process re-engineering, using advanced technology and rationalising existing services, etc.

12. One of the key determinants of the success of EPP is effective communication. Over the past year, we have held regular dialogues with entities within and outside the Government, including a seminar for over 150 subvented organisations and meetings with individual subvented organisations to address their particular concern. We have briefed LegCo Members at the Finance Committee and at the Panel on Public Service. We have maintained liaison with the staff side through meetings of with the Central Consultative Councils, the Model Scale I Council and the Disciplined Services Consultative Council, etc. Departments have also kept their Departmental Consultative Councils informed of their EPP plans. We have published three issues of the EPP Newsletter. Copies of the Newsletter are distributed to civil servants, staff of the subvented organisations, LegCo Members and the general public upon request. We have also put it on the Internet to widen its circulation.

13. To give Controlling Officers more flexibility in the use of resources, we have devolved greater responsibility and authority to Heads of Departments in procurement, accommodation and printing matters.

14. We have selected five departments to operate, on a pilot basis, as a one-line vote department from April. To strike a balance between flexibility and public accountability, we have undertaken to provide LegCo Members with regular reports on the deployment of resources in these one-line vote departments. We submitted the first such report to Finance Committee in September.

15. To encourage bureaux and departments to economise, we have put in place a mechanism known as the "Save & Invest Account". Under this arrangement, bureaux and departments which spend less than their approved provision for the year may have up to half of the saved amounts credited to their "Save & Invest Account". The funds available in these accounts may be drawn any time to finance initiatives to achieve productivity gains, such as computerisation and energy savings projects, etc.

16. With the co-operation of bureaux, departments and subvented organisations, the implementation of EPP has been smooth. There is one issue which we will pay special attention in the months ahead, namely redeployment of surplus staff to new or growth areas.

17. A clearing house will be established in the centre to match surplus staff with new service requirements. We will provide the necessary training for existing staff to meet new job requirements. The objective is that while we will press ahead with EPP, we will ensure that we are putting valuable human resources to good use and better serve the community.

18. We will continue to update Members on how we are doing with EPP from time to time.

19. Finally, my colleagues and I are happy to answer any questions from Members relating to our Policy Objective of prudent management of public finances.

Finance Bureau
October 1999