| 2.77 Up till 2001, we enjoyed
regular budget surpluses due to strong and stable
economic growth, buoyant revenues, and favourable
demographics. The environment has changed. Economic
growth has become tougher and more volatile, we
have lowered our tax rates substantially, and
new spending priorities have emerged. Our operating
revenues alone are no longer able to meet total
expenditures. But with Net Investment Income Contribution,
we are able to balance the budget over the business
cycle.
2.78 Our major taxes are at about the right levels.
Going forward, I do not foresee major changes
on the revenue front. However, new spending needs,
in the areas of healthcare, education and training,
and R&D, will put pressure on our public finances.
We must therefore continue to keep government
lean, so that we can fund new spending priorities.
I will highlight two measures we are taking in
this area.
2.79 First, the Centre for Shared Services (CSS)
will be up and running by May 2006, to deliver
selected human resources and finance processing
activities to government agencies. It will help
us achieve greater efficiency through economies
of scale and streamlining of procedures. I expect
annual cost savings of 15% in operating expenditure
on these services when operations have stabilised.
2.80 Second, we will continue to exercise tight
control on headcounts in the public sector, and
ensure that every post is fully justified. Since
the introduction of the Manpower Management Framework
(MMF) in July 2004, we have achieved an overall
2.9% reduction in headcount, mainly through re-organising
existing functions, with some help from natural
attrition. I have decided to continue with the
MMF cuts until FY06, followed by a headcount freeze
for three years. But we will continue to make
exceptions for new functions so that agencies
can meet emerging needs.
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