LO
5
14. Secondly, we take the view that the residual deficit on capital account should be financed in a certain way, that is to say, at least 50% by capital revenue and no more than 50% with debt (which is our euphemism for loan
finance).
15.
the
over
Thirdly, in case there is a period of years during which there is a continuous recourse to debt to finance up to 50% of the residual deficit on capital account, I have laid down that debt service charges should not, at any time, exceed income on our fiscal reserves. (And, I stress our fiscal reserves, that is to say, balances available for appropriation, if need be, and above the annual revenues of the Colony. balances are represented by the General Revenue Balance which is the excess of the Government's financial assets over its short term liabilities at the end of a period of account. The assets and liabilities of the Exchange Fund are kept quite separate from the General Revenue Account).
These
16.
The total effect of these guideline ratios is that, taking one year with another, Hong Kong budgets have a neutral effect on the growth in the money supply after making due allowance for any necessary additions to our fiscal
reserves.
This is as we believe it should be.
I
say this because I believe there should not be any unplanned monetary consequences from our decisions on revenue and expenditure for I prefer to see decisions to increase
expenditure reflected in decisions to raise the neccssary revenue. And, incidentally, any decisions that ought to be taken about the Hong Kong dollar are taken in the light of their monetary consequences and it is only in the management of the exchange rate that a positive monetary policy can be
said to exist.
17.
Finally, we take the view that the balance of the fiscal system needs to be defined in terms of two ratios: the ratio of direct to indirect taxation;
and the ratio of direct and
indirect taxation taken together to all other recurrent
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