XN000022-1974-07-19 — Page 3

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FRIDAY, JULY 19, 1974

FOR THIS REASON, HE FELT THAT THE BUDGET STRATEGY THIS YEAR, WHICH IN HIS OPINION WAS +AEOUT RIGHT+, SHOULD BE PUBLICLY DISCUSSED TO SEE WHY IT WAS, OR VAS NOT, RIGHT AND FEASIBLE IN VIEW OF THE SOCIAL AND POLITICAL PRESSURES ON THE GOVERNMENT.

THE CONSEQUENCES AND RISKS SHOULD ALSO BE CONSIDERED. HE ADDED, OF ADOPTING A MODIFICATION OF THIS YEAR'S BUDGET STRATEGY WHICH, FOR INSTANCE, MIGHT INCLUDE A RATHER GREATER DEPENDENCE ON LOAN FINANCE CIF AVAILABLE), RATHER HIGHER TAX RATES AND/OR A RATHER VIDER TAX BASE, AND THE USE OF THE RESERVES. HOWEVER, MR. HADDON-CAVE STRESSED THAT HE WOULD ARGUE VERY STRONGLY AGAINST THE LAST POINT.

AS FAR AS HE WAS CONCERNED, THE RESERVES SHOULD NOT BE MIS-USED AS THEY ARE A SOURCE OF RECURRENT REVENUE AND AN INSURANCE AGAINST UNFORESEEN CIRCUMSTANCES. +THEY PROVIDE COLLATERAL FOR CONTINGENT LIABILITIES WHICH, WITHIN A FEW YEARS, WILL BE SUBSTANTIAL GIVEN THE SEVERAL LOAN PROGRAMMES WE HAVE IN MIND FOR SOME OF THE COVERNMENT'S OUN CAPITAL WORKS PROJECTS AND THE MASS TRANSIT RAILWAY PROJECT.<

THE FINANCIAL SECRETARY SAID ONE OF THE REASONS UHY A REAL DEBATE ON THE RELATIONSHIP BETWEEN PUBLIC EXPENDITURE AND THE ECONOMY HAD NOT SO FAR HATERIALISED WAS EECAUSE PROBABLY HANY PEOPLE COULD NOT OR COULD NOT BELIEVE THAT AFTER MANY YEARS OF PERSISTENT SURPLUSES, +VE NOW FACE THE VERY REAL POSSIBILITY OF PERSISTENT DEFICITS WHICH HAVE TO BE AVOIDED BY ONE MEANS OR ANOTHER.+

SOONER OR LATER, HE SAID, WE WOULD REACH THE POINT WHERE TAX RATES WOULD HAVE TO BE RAISED AND/OR FUNDS ACQUIRED OUTSIDE THE FISCAL SYSTEM.

+ INDEED, THE RATE AT WHICH PUBLIC EXPENDITURE IS NOW INCREASING IS SUCH THAT, IN MY VIEW, UE HAVE ALREADY REACHED THIS POINT,+ M2. HADDON-CAVE SAID.

IN THE PAST SIX YEARS, FOR INSTANCE, TOTAL PUBLIC EXPENDITURE AT CURRENT PRICES INCREASED BY 160 PER CENT, BUT THE GROSS DOMESTIC PRODUCT WENT UP BY 110 PER CENT.

EVEN IF THE GOVERNMENT WAS PREPARED TO CONTEMPLATE A SUBSTANTIALLY DIFFERENT TAX STRUCTURE, HE WENT ON, THIS WOULD NOT MEAN THAT THE RELATIVE SIZE OF THE PUBLIC SECTOR COULD GROW INDEFINITELY. THIS WAS BECAUSE IF PUBLIC EXPENDITURE GREW FOR ANY LENGTH OF TIME AT A SIGNIFICANTLY FASTER RATE THAN THE ECONOMY, THEN RESOURCES WOULD BE DIVERTED AWAY FROM THE PRIVATE SECTOR, IN EFFECT. AWAY FROM THE PRODUCTION OF GOODS FOR EXPORT.

FURTHERMORE,