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AL
Mr JA B Stewart (HKD)
CC:
Mr M Stewart (Special Adviser)
HONG KONG : BUDGET
Santelio
Bu with pojas
Lick 100/2.
1. May I refer to your minute of 24 February 1977. I am copying this minute to Mr Michael Stewart who may wish to comment.
2.
The long term financial forecast in the Governor's telegram 124 of 24 February to Lord Goronwy -Roberts is broadly acceptable.
Goronwy-Roberts
At least we have a deficit for 1978/79 and 1979/80; 1980/81's surplus is a little distant to be over concerned. There is also acceptance of some scope for additional social expenditure. Turning to the Governor's areas of concern, I would comment firstly that the administrative difficulties are purely local and well within his ability to resolve (as Hong Kong has done so well and so often before.) Secondly, and more importantly, whilst I accept that the world trade outlook for 1978 is a little uncertain, we must impress on the Governor that mini-recessions do not automatically imply cutbacks in public expenditure; this is still the Financial Secretary's position, as I see it. I understand (though subject to political correction) that Dr Owen takes a similar stance to his predecessor on the maintenance of public expenditure levels. Any hint of a repeat of the cutbacks in 1975 (when the Housing programme was put back two years) needs to be stamped upon.
3. The Budgetary strategy contained in the Governor's telegram 193 is frankly disappointing. It is more of a series of an accountants' or housekeepers' guidelines. What one would expect in the section in a Budget entitled strategy is a recognition and elaboration of the economic and social policies of the administration as already announced by the Governor, together with their economic and fiscal implications expressed in terms of economic growth, effects on incomes and prices, exports and imports etc. What is about to be presented is, in my view, contrary to Lord Goronwy-Roberts instruction at para 6c of his meeting with the Governor on 9 December 1976 - namely, no public expression of guidelines. Paras 83, 93 to 98, 103 to 105 all illustrate this. The economic implications of the Budget are quickly dealt with at para 225 when guidelines again and the effect on the construction industry are briefly mentioned in 11 lines (in a three hour speech!)
4.
One final point would be that if we are now provided with para 81 to 109 of the Budget speech, no doubt the entire graft is available, if requested.
5.
Pointless - the budget is
Like you, I note no mention of the report of the Inland Revenue Ordinance Review Committee (which I shall appraise on my return from Geneva on 7 March 1977). However, I understand from the Exco papers that they now envisage a working party under the Financial Secretary reporting on this in August 1977 and that it is unlikely that major changes would become effective in less than 3 - 3 years.
6. In conclusion, I would reiterate my concern in that we still have a good way to go in moving the Hong Kong administration towards a full appreciation of its economic and social strategy/policies.
25 February 1977
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Orman fun
Adrian Smith
Senior Economic Adviser G 72/G 8815
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