WEDNESDAY, FEBRUARY 26, 1986 *
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+IN PLACE OF AN EXPECTED DEFICIT FOR THE CURRENT FINANCIAL YEAR OF ABOUT $1 BILLION, THERE SHOULD BE A SMALL SURPLUS.
*MOREOVER FOR THE FINANCIAL YEAR 1986-87 | FORECAST A SURPLUS OF $348 MILLION. THESE FIGURES SUGGEST THAT THE PUBLIC FINANCES ARE BACK IN EQUILIBRIUM.
+FOR THE FOURTH YEAR RECURRENT EXPENDITURE IS BELOW BUDGET. MOREOVER IN 1985 THE CIVIL SERVICE ESTABLISHMENT INCREASED BY ONLY 41 POSTS. WE MUST NOW ACCEPT GROWTH IN ORDER TO PROVIDE PROPER STAFFING FOR HOSPITALS. THE IMMIGRATION DEPARTMENT. THE POLICE AND OTHER DEPARTMENTS. BUT THE GOVERNMENT WILL CONTINUE TO BE FRUGAL.
+THUS WE INTEND TO ENSURE THAT GROWTH IN PUBLIC SECTOR EXPENDITURE IS CONTROLLED BY GROWTH IN GROSS DOMESTIC PRODUCT. IT IS VITAL NOT TO SPEND MORE THAN WE EARN. OTHERWISE TAXES MUST RISE.
+ IT IS IMPORTANT NOT TO PAY TOO MUCH ATTENTION TO ANY ONE YEAR. WE MUST BE IN A POSITION TO CONSIDER LONGER TERM TRENDS. TO THIS END WE HAVE NOW PUBLISHED A FIVE-YEAR MEDIUM RANGE FORECAST.
+ THE GROWTH OF GDP LAST YEAR WAS ONLY ABOUT 1 PER CENT. THIS WAS DUE TO A FALL IN DOMESTIC EXPORTS, THOUGH OUR TOTAL EXPORTS, INCLUDING RE-EXPORTS, GREW BY 6 PER CENT. ON THE OTHER HAND INFLATION FELL TO 3.2 PER CENT ON THE CONSUMER PRICE INDEX A. WE ENJOYED EFFECTIVE FULL EMPLOYMENT. REAL WAGES HAVE AGAIN BEEN RISING MODERATELY.
+ EXPECT GDP GROWTH OF ABOUT 4.5 PER CENT THIS COMING YEAR. WHILE INFLATION MAY INCREASE SLIGHTLY BECAUSE OF THE FALLING US DOLLAR TO WHICH THE HONG KONG DOLLAR IS FIRMLY LINKED, IT SHOULD NOT EXCEED 5 PER CENT. OUR DOMESTIC EXPORTS SHOULD AGAIN GROW AND FULL EMPLOYMENT BE MAINTAINED.
+WITH THIS IMPROVED BACKGROUND MY REVENUE PROPOSALS INVOLVE A REDUCTION OF $40 MILLION IN TAXATION. THEY INCLUDE INCREASES IN PERSONAL TAX ALLOWANCES, AMENDMENTS TO ESTATE DUTY, AND REPEAL OF THE UNPOPULAR 1984 OVERSEAS INTEREST TAX PROVISIONS.
+OFFSETTING THESE CUTS OF SOME $335 MILLION WILL BE SMALL INCREASES IN VARIOUS INDIRECT TAXES AND FEES, DESIGNED TO CORRECT THE EFFECTS OF INFLATION.
+ IN THE CASE OF TOBACCO, BECAUSE OF FORTHCOMING TRADE NEGOTIATIONS THERE IS NEED TO EMPHASISE HONG KONG'S FREE TRADE POSITION.
+ IT IS CONSEQUENTLY NECESSARY TO LOWER THE DIFFERENTIAL IN DUTY BETWEEN IMPORTED CIGARETTES AND IMPORTED TOBACCO SO THAT WE MAY NOT SEEM UNFAIRLY TO BE PROTECTING OUR LOCAL CIGARETTE MANUFACTURING INDUSTRY.
/+THE TAX