НК
CONFIDENTIAL
HIKS 100/2.
ELLEIVIO IN REGARY NO. 51
2 6 AUG 1988
Foreign and Commonwealth Office
London S.W.1
DESK OPAZER INDEX
PA
RESISTRY
Action Taken
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Mr C P Haddon-Cave CMG
Financial Secretary Hong Kong
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24 August 1977
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I mitte (a) Yes!!
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Dean Mr Hadom-Cavel
HONG KONG : BUDGET
1.
Paragraph 7 of John Stewart's letter to the Governor of 16 June 1977 recorded, inter-alia, our agreement to discuss technical aspects of your 1977 Budget by direct correspondence; this letter sets out our views on this aspect.
2. We are of course guided on public expenditure by the views of the Secretary of State and his immediate predecessor to which we have made reference in the past. If you have any doubts on what these are perhaps you will let us know.
reply
3. We therefore were particularly gratified to note in para 98 of your Budget speech an acknowledgement of your ability to increase public expenditure over 11 in proportionate terms and, (in footnote 4), that the reletive size of the public sector in any economic downswing is to be larger than on the upswing, i.e. the counter-cyclical role of public expenditure has heen recognised. We are assuming the definitions of "Upswings" and "Downswings" are in relation to the long term trend rate of economic growth of approximately % per annum.
't. We were also pleased to note from para 10 of your speech that short-lived deficits were best dealt with by having recourse to reserves. Other sources to our mind would be higher taxation revenue and borrowings. We would wish to enquire as to your view of the priorities as you see them between these alternatives.
5. We note from para 90 that there should be some room for new expenditure in the last your or two of the forecast period, i.e. 1979/81, and that this view is arrived at, putting your para in simple terms, by deducting forecast expenditure from forecast revenue. We would prefer an alternative procedure and presentation whereby existing and new expenditure programmes are developed and costed to be included in the forecast of expenditure and the result is then compared with a range of revenue planning estimates based on differing assumptions. Such a procedure would serve to demonstrate most clearly that the expenditure associated with the economic and social policies were not revenue, but independently, determined. We would like to have your views on this approach.
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