CONFIDENTIAL
ASSESSMENT OF HONG KONG BUDGET BY [ECONOMISTS DEPARTMENT] FCO
INTRODUCTION
1.
The 1977/8 Budget was introduced by the Financial Secretary on
2 March 1977. As part of the new procedure a broad outline had earlier been given by the Governor to the Minister of State (Lord Goronwy-Roberts) in December 1976 augmented in part by telegrams in mid February 1977.
GENERAL
2.
In essence, whilst public expenditure was to be increased by just over 20% in 1977/8, revenue was regarded as adequately buoyant to require no
increases in taxation and also to allow a small budgetary surplus.
3.
However, the Budget speech lacked an overall theme other than conservatism; it came over as an old fashioned and outdated way of looking at economic policy; it hardly seemed to glance at all in the direction of Hong Kong's basic economic and social objectives and the extent to which the
Budget is an instrument that can be used to serve them. The continual references to guidelines which seem to require that every variable be in some predetermined relationship to every other lacked reality and invited boredom. The link between the economic and social policies already announced by the Governor and Budgetary proposals and effects seems to be ignored. In our view there is no economic case for budgeting for a balanced budget (such a view would be pre-Keynesian); there is a good social case
for a deficit.
4.
Whilst the presentation of Budgets since 1972 has been a significant improvement over earlier times, the relationship between the Budget and the economy is rather more difficult to trace in Hong Kong than elsewhere; on monetary affairs the story is not dissimilar.
5.
Given Hong Kong's propensity to underspend and the creation of an atmosphere where taxation increases would not be unexpected, it is perhaps surprising that the opportunity was not taken to increase reserves to cover a high level of future public expenditure in the medium term future when, it is acknowledged, that its tax base (active working population) would be declining and that world activity levels by common agreement would be
growing at a declining rate.
CONFIDENTIAL
6. Hong Kong's fiscal