RESERVES
9.
Many Members have rightly identified the maintenance of adequate fiscal reserves as a key feature of my Budget strategy. Concern has been expressed that in planning for $71 billion in 1996-97, I have set the target too high, especially as we are only committed to a figure of $25 billion under the terms of the Memorandum of Understanding on the Airport Core Programme. There have also been concerns that I intend to go on raising taxes in future years in order to build up a higher level of reserves. I want to take this opportunity to clarify some of these issues and, I hope, to allay Members' anxieties. Let me put the facts before you.
10.
The forecast fiscal reserves for 1996-97 of $71 billion is in 1996-97 prices. The figure would be only $47 billion if it were expressed in 1991 prices.
In 1992-93, the fiscal reserves will represent about 80% of total expenditure. This is not a record high. The peak year was 1990-91, when the reserves were the equivalent of 92% of expenditure.
Far from planning a massive increase in the reserves over the next five years, we expect them to fall as a proportion of the Government's annual spending. They will decline from 80% of expenditure in 1992- 93 to about 40% in 1996-97.
I hope these comments answer most of Members' concerns. However, I have detected an important misunderstanding about the role of the fiscal reserves, and of the $71 billion figure we have forecast for 1996-97. It is a mistake to focus unduly on the figure we have forecast for the end of the planning period. We need adequate fiscal reserves so that we can draw on them if we encounter adverse economic and financial developments. If we are forced to draw on them, then of course the reserves will be considerably less than the $71 billion we expect by the end of the current planning period. The important point is that we should have an adequate cushion throughout the next five years.
11. I do not regard the forecast reserves as in any way excessive. Let me set these figures in the proper context.
We are committed to set aside $25 billion for the future SAR Government in 1997.
We also have to ensure an adequate cushion to meet future fluctuations in our economic fortunes.
The cushion is our best guarantee that we will not be forced to cut back on funding for our key programmes if we encounter unexpected economic difficulties.
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