XN000022-1976-04-07 — Page 6

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Wednesday, April 7, 1976

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CRITICAL LIMIT' FOR FUBLIC SECTOR EXPENDITURE 19

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The Financial Secretary, the Hon. Philip Haddon-Cave, said today ɔing

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that the size of public sector spending in Hong Kong reached the "critical

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limit" when its ratio to the Gross Domestic Product rose to 20 per cent.

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Speaking in the resumed debate on the budget in the Legislative

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Council, he said 20 per cent was the maximum permissible level for an open

economy such as Hong Kong, "necessarily dependent on a relatively narrow

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ALIDILJOJE When the economy was enjoying strong growth, the ratio of the public

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sector to the G.D.P. should fall, partly because the growth rate of public

spending would always tend to lag behind the growth rate of the economy on -

the upturn, and partly because we want to leave room for the public sector

to expand relatively to the economy as a whole on the downturn."

"This," Mr. Haddon-Cave said, "is precisely what has happened in

recent years,"

From about 15 per cent in the four years 1970-73 the ratío rose to

REACHAI 19 per cent in 1974 and 1975 when the economy stood still.

However, if the 1976-77 budget estimates were right the ratio would

rise to over 20 per cent and yet 1976 was "destined to be a good year for the

economy.

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Mr. Haddon-Cave said there was justification for this "as we strive

to make up for lost time, and provided the ratio tends to fall later on in the

upturn."

The Financial Secretary described as "quite incorrect" the Hon.

F.W. Li's conjecture that underspending on capital account this year was due

to a deliberate slowdown in the public works programme.

"I seriously