Hong Kong Financial Secretary Henry Tang forecasted a fiscal deficit of 10.5 billion HK dollars (1.35 billion US dollars) for 2005-06 and the Consolidated Account was expected to show a surplus in 2007-08, one year ahead of target.

He made the remarks while presenting the 2005-2006 Government Budget to the Legislative Council.

Public expenditure as a percentage of gross domestic product would decrease to 20.2 percent in 2005-06 and would fall below the 20 percent target in 2006-07.

He said the government would uphold the principle of "market leads, government facilitates" and promote economic growth by facilitating the market's development and providing a favorable platform for the business community.

Tang said revenue from various sources was higher than expected as the economy bounded ahead.

He estimates the Consolidated Account will see a surplus of 12 billion HK dollars in 2004-05, equivalent to 0.9 percent of Gross Domestic Product.

"This is the first time since 1999-2000 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," he said.

He explained that land premiums amounted to 31.3 billion HK dollars -- more than two and a half times the original estimate. Operating revenues, such as salaries tax, profits tax and stamp duty, were also higher than expected, with increases ranging from 9 percent to 40 percent.

"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, so we cannot rely too heavily on it to fund operating expenditure. Moreover, the sums raised by issuing bonds in 2004-05 will have to be repaid. Discounting the proceeds from bond issuance, the Consolidated Account will still record a deficit of 13.4 billion HK dollars," Tang said.

The operating expenditure for 2004-05 will be lower than that for 2003-04, he said. Barring two special accounting arrangements with the former municipal councils, this is the first time in more than 50 years that operating expenditure has fallen.

Source: Xinhua