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Financial Position
5.
The fiscal reserves (or free surpluses) will be at least $HK3,367 millions at 1 April 1977, an increase of $HK557 million over 1 April 1976.
Economic Situation
6. (a) Growth in GDP.
The estimate of GDP for 1976 in real terms shows an increase of
16% over 1975. (This is compatible with the revised forecast made by the Financial Secretary last autumn.) An increase of 7% in real GDP is forecast for 1977. I have written separately to Mr Haddon-Cave asking for details of the effects on income distri-
bution.
(b) Employment and Wage Rates.
The total number employed in manufacturing industry by December 1976 was 774,000 or 31% higher than the lowest point in March 1975. From other sources it is clear that Hong Kong has effectively
achieved full employment. However,
However, a definitive estimate of percentage unemployment would be useful. The index of real wage rates in manufacturing industry should have returned by next month to its peak of March 1973. Wage rates therefore appear to be lagging behind the growth in GDP.
(c) Prices.
An increase of 5-6% is forecast for consumer prices.
(a) Currency.
It is estimated that the Hong Kong dollar will continue to be changed at around 4.675 to $US1. This is surprising given that the HK$ appreciated by about 7% in 1976.
Revenue Estimates
7. The total revenue estimate is $HK8,412 millions. Estimated recurrent revenue will increase by $HK763 millions (11.4%) to $HK7,474 millions. The increase in revenue derives essentially from increases in the anticipated yields from earnings and profits taxes (as a result of the increase in industrial activity) and from the increased yield from rates due to an increase in rateable values. There will be proposals for changes in revenue collection,
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