CONFIDENTIAL
XCCI(93)2
are based on trend assumptions, actual revenue would usually exceed forecasts at times of high economic growth. Hence the magnitude of the shift in the fiscal balance was not likely to be as great in the short-term as might appear the case based on the figures provided.
18
(a)
In addition we placed some emphasis on those factors which would help to moderate the effects of any shift in the fiscal balance -
the discipline of ensuring that the growth in public expenditure is contained within the trend growth in the economy as a whole (currently forecast at 5% p.a.) will be maintained;
(b)
(c)
(d)
a significant proportion of the additional spending, particularly that on the airport, will be taken up by imports;
airport contractors will be permitted to import workers over and above the general increase in imported labour which is taking place in other sectors; and
there is a continuing shift of manufacturing capacity into southern China which helps to release labour within Hong Kong to meet other demands.
We also stressed that the suggested revenue raising measures were unlikely to be politically feasible.
Inflation
19
We made the point that the current inflation problem in Hong Kong was not imported. This was evidenced by the modest increase in the imports price index during the past two years (only by 2.5% and 1.9% in 1990 and 1991 respectively). The mission agreed that our inflation problem stemmed from the ongoing structural change in our economy. This in turn was caused by the sharp increase in demand for services in Hong Kong created by the rapid economic development in southern China. With the economy practically at full employment, the local workforce at large was generally enjoying continued improvement in real income and standard of living. On the other hand, as our inflation mainly arose from the limited supply of resources, we were tackling the inflation problem from the supply side by improving productivity, increasing labour and land supply, which would be more effective than monetary measures.
Executive Council