CONFIDENTIAL
XCCI(93)2
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Furthermore, there is a risk that the pressure on the budget position could be even larger than envisaged in the medium-range forecast. Apart from the possibility of cost over-runs on the airport projects as global economic conditions improve, rising affluence leading to increased demand for social services and public infrastructure will also bring spending pressures. In light of this, the mission suggests that the minimum aim of fiscal policy should be to avoid a significant narrowing of the budgetary surplus so long as the economy continues to operate at full capacity. In this context, the mission underscores the need to economize on operational expenditures, and to smooth, to the extent possible, capital expenditures.
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The mission suggests a shopping list of possible taxation measures to raise revenue and hence increase fiscal surpluses. These include, for example, bringing in line the top tax rates on personal and corporate incomes; taxing consumption of electricity, gas and water; and introducing environmental taxes and user fees on publicly-provided services.
Balance of Payments Statistics
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The mission maintains that more complete data on the balance of payments would enhance the analysis of Hong Kong's economy, and welcomes the decision to proceed with preparatory work on compiling data on external investment income flows.
DISCUSSIONS WITH THE IMF
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In the course of the Consultations and in reviewing the "Concluding Remarks" (as summarised in paragraphs 7-15 above) at the concluding session, the following additional points were made in our discussions with the mission.
Fiscal Policy
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In our discussions with the mission we were only able to draw on our financial projections which were in the public domain. Thus, we were unable to disclose to the mission the fact that the shift in the fiscal position is likely to be much less than suggested. Nevertheless, we did make the point that given our system of rigorous expenditure control there was an in-built bias towards underspending and that, since revenue projections