4.
CONPA
NTIAL
UK EYES A
government, but I believe that most of the leases are for 99 years, which means, at going world rates of time discount, that we may forget the recurrent aspect of land sales.
Consequently, I have provisionally drawn up Table 1 of Modified Government Revenues in the last ten years and the resulting drain on the economy or 'Economic Surplus' (as opposed to the 'Financial Surplus').
C
5. In the past, there has been a tendency (myself and the World Bank included) to use measures like lines (e) and (h), whereas lines (d) and (g) tell a different story for 1972-73 and 1977-78. It now appears that HKG fiscal policy was deflationary right through to 1971 but that in 1973-74 it was reflationary. As the attached Graph 2 shows, looking at the trend monthly figures of Industrial and Commercial electricity consumption and taking them as proxies for monthly output indeces of the two private sector components of the economy, the recession began to bite about April '73, reached the 'Commercial' trough in March '74 and the 'Industrial' trough in January '75. At first glance, line (d) indicates that HKG inadvertently did the right thing in stimulating the economy in '73 and 74, but an equally quick glance at line (g) shows that the effort was far too small (fiscal policy in '72 being neutral). HKG's actions in '75 and 76 were mildly deflationary, and reflationary in '77. This year they imply fiscal policy will again be reflationary, with both a Financial and an Economic deficit, but we have already expressed doubt about their estimates; we have provided HKGD with alternative estimates of the Financial Surplus ranging from HK$1400 m to HK$1850 m if past trends in underspending and underestimating revenue are maintained. HKG say their predictions this year will be better, but at the same time admit overestimating expenditure (para 2) though they
won't say by how much.
[
6.
Given the augmented role sought by the Economic Services
and the emergence of econometric models (to predict con-
sumption and national income) perhaps underestimation of revenue in '78 will be substantially lower than in the past.
In '77, $1062 m of the total $2924 m underestimation of
/revenue
CONFIDENTIAL UK MYMA A