15.
and employment and electricity consumption in manufacturing indus- try began to rise. But, it is probable that these indicators simply reflect a desire by customers abroad to top-up stocks that have been run-down to unusually low levels in the face of acute liquidity difficulties. This being the case, the present very mild 'recovery' in Hong Kong could soon peter-out, rather than be sustained, and in this event unemployment could rise even further for it would seem likely that many firms are in liquidity diffi- culties in Hong Kong as well, partly on account of excessive stock- piling in 1973/74 when commodity prices were high.
31. Meanwhile, bank credit for the purpose of trade and inäus- try remains static, office rents are continuing to fall (by a further 5% in the first half of the year), telephone applications (though not car registrations) remain on a downward trend, and restaurant prices are declining as custom (though no longer the number of tourists) continues to fall. And whilst the number or private building plans submitted for approval increased in the second quarter, wage rates in the building and construction indus- try, as indeed, in the rest of the economy, showed no tendency to change. At best, given that the consumer price index is still stable, real wage incomes are holding steady,-(with savings depo- deposits still equivalent to about a third of total deposits now standing at a record HKZ12,000 million or HK$2600 (USZ500) per head of the population). And this compares with the govern- ment's latest estimate that this year, as in 1974, there will be zero growth in the real gross domestic product (which, in current price terus, now stands at about HK34,000 million, of/HK8000 (US$1600) per head of the population).
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Current Budgetary Strategy
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32. It was against the background of zero real growth for two successive years that the government felt it had little option but to run a further budget deficit in 1975/76. This was after substantially pruning its recurrent expenditure estimates and ro-phaning some of its capital works projects. It was also after introducing, inter alia, a temporary surcharge, of 10%, on profits tax (effectively raising tho standard rato from 150 to log), to be replaced in the near future by a dividend withholding tax. But the revenue shortfall is not to be financeù, as in 1974/75, by further depleting the reserves. Instead, it is intended that half shall be financed by borrowing on the domestic money market
possibly
CONFIDENTIAL