2. Public Finance ( 3 )1 Fiscal Policy

3. Public Finance ( 3 )2 Ways to finance government expenditures in Hong Kong Tax revenue : direct and indirect taxes Non-tax revenue : sale of land, fees and charges ……. Past fiscal surplus ( 財政儲備 ) Selling government bonds ?

4. Public Finance ( 3 )3 Types of Government Expenditures Classification by function: Types Economic services Security Social welfare Health Education Environment Community & external affairs Infrastructure Support Housing Classification by nature Capital expenditure refers to expenditure on capital works and is non-recurrent in nature. Revenue expenditure refers to regular expenditure.

5. Public Finance ( 3 )4 Fiscal Policy : Government Budgeting Policy Fiscal policy means that the government makes decisions on taxation and spending with an aim to influence the income ( GDP ) and employment.

6. Public Finance ( 3 )5 Economic Problems: An economy is not doing well when.. Unemployment rate is rising. Real GDP growth rate falls or even becomes negative. Price level is falling. ( Or, price level is rising. )

7. Public Finance ( 3 )6 Aims of Fiscal Policy Full employment ( very low unemployment rate ) Economic growth ( real GDP growth ) Price stability ( without deflation and inflation )

8. Public Finance ( 3 )7 Types of Budget : How to achieve the above aims ? Surplus budget ( 盈餘預算 ) : estimated revenue is larger than estimated expenditure. Deficit budget ( 赤字預算 ) : estimated revenue is smaller than estimated expenditure. Balanced budget ( 平衡預算 ) estimated revenue is equal to estimated expenditure.

9. Public Finance ( 3 )8 Surplus budget ( 盈餘預算 ) Economic condition: inflation and overheated economy Aim: Price stability Policy : contractionary fiscal policy  decrease government expenditure  increase tax rate

10. Public Finance ( 3 )9 Deficit budget ( 赤字預算 ) Economic condition: unemployment and falling real GDP growth Aims: Reducing unemployment and economic growth Policy : expansionary fiscal policy  increase government expenditure  decrease tax rate

11. Public Finance ( 3 )10 What type of budget policy would you advise the Financial Secretary of the HKSAR to adopt to achieve economic growth and high employment ? End