Abstract
The huge amount of land premium which the Hong Kong Government receives over the years from land sale and lease modifications is legendary. It gives rise to claims that the Hong Kong Government accumulates its fiscal reserve from the sale of land, and it should be able to fund a much higher level of recurrent expenditure in much needed services. This paper points out that within the structure of government budget, land premium revenue is credited to the Capital Works Reserve Fund, from which capital works expenditure is funded. The legend that the Hong Kong Government’s fiscal reserve owes much to the contribution of the land premium is true before 1997 but has turned into a myth since the changeover of sovereignty. Since 1997, the land premium revenue is just sufficient to pay for the capital works expenditure, with a slight surplus. The reality seems to be that since 1997, the land premium enables Hong Kong to build a first-rate transportation infrastructure, schools, hospitals and other public facilities.
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