SECRET
Public Sector Expenditure as % of GDP
10.
Total expenditure in the public sector will probably be abo 17% of estimated GDP compared to a forecast of 20%. The difference is explained by the "surprising strength of the up-swing of the economy". Nevertheless the increase in public expenditure is a record $HK1,400 millions.
11. Apart from explaining the variations from the figures he gave Lord Goronwy-Roberts in December, the Governor makes two points. He expresses concern that it may not actually be possible to spend the funds provided for, particularly on capital works of the underspending on the public works programme in 1976/77. Second, the Governor says that it is his intention to cover any unexpected "flush of expenditure" by drawing on the reserves rather than keeping within the budgetary limits.
12. There are certain features of the budget which may give grounds for concern. First, the budget provides for a surplus when a deficit would have looked better. Second, there is to be no percentage increase in the level of expenditure in the public sector vis-á-vis GDP. Again, it would have been politically and objectively more acceptable if there had been an increase. However, there will be a very large increase in real terms for the second year running. This will include significant increases in expenditure in the key areas of education, housing, social welfare, medical and health services and labour. (See table in paragraph 9.)
It is gratifying that there will be a sizeable increase in expenditure on education, an area where we have thought that the Hong Kong Government was slipping behind in implementing the measures in the Planning Paper. It is also encouraging that the Governor has said that the reserves will be drawn on if there is a need for increased resources to finance programmes.
13. There is no indication of any "strategy" in this budget; no indication of its effects on the economy of Hong Kong nor of its place in the long-term planning of the Hong Kong Government. Essentially it is an accountant's budget. That it is so, could have been predicted. The present Financial Secretary is
4
SECRET