Hong Kong experienced its highest growth rate in four years, reaching 8.1% in 2004, Financial Secretary Henry Tang says. That is well above the average annual growth rate of 4.8% over the past 20 years and suggests the economy is back on an upward track following the adjustments over the past few years.

Banner year: In 2004, total exports of goods and offshore trade both surged by 15%, private consumption increased 6.7%, and visitor arrivals for the year reached an all-time high of 21.81 million.

Presenting his annual Budget address in the Legislative Council today, Mr Tang presented the following highlights from the financial year:

* external trade remained buoyant, as the total exports of goods and offshore trade both surged by 15%;

* the number of visitor arrivals for the year reached an all-time high of 21.81 million;

* private consumption increased 6.7%;

* investment in industrial machinery, after falling for several years, resumed positive growth, with an overall increase of 20% for the year, the highest since 2000;

* property values rebounded, and the number of homeowners with negative equity fell drastically from about 106,000 in the middle of 2003 to around 19,000 at the end of 2004;

* the number of bankruptcy petitions also fell from more than 22,000 in 2003 to about 12,000 in 2004, and was the lowest in four years;

* the unemployment rate fell steadily from its peak of 8.6% in the middle of 2003 to a three-year low of 6.4% earlier this year;

* the total employed population rose to an all-time high of 3.34 million, up by about 154,000 over the trough in 2003, as there was a surge in vacancies across many sectors;

* in July 2004, the deflation that had persisted for nearly six years finally came to an end;

* in the first half of the year, the Composite Consumer Price Index still experienced a 1.3% year-on-year decline, but in the second half of 2004 this reversed to an increase of 0.5%, while for the year as a whole, the average price decline was only 0.4%.

Fiscal balance to come sooner rather than later

Revenue from various sources was higher than expected as the economy bounded ahead, Mr Tang said. He estimates the Consolidated Account will see a surplus of $12 billion in 2004-05, equivalent to 0.9% 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.

Land premiums amounted 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, were also higher than expected, with increases ranging from 9%  to 40%.

"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 issuances, the Consolidated Account will still record a deficit of $13.4 billion," Mr 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.

"This demonstrates that the Government's various control measures 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," he said.

"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 2004-05 is forecast to be $14.1 billion, much lower than the $46.6 billion originally estimated."

He acknowledged the public was dissatisfied with the Government for allowing its operating expenditure to soar in the wake of the Asian financial crisis.