XN000022-1977-11-12 — Page 3

SATURDAY, NOVEMBER 12, 1977

+BY CONTRAST, INVISIBLE IMPORTS AND EXPORTS FOR BRITAIN WERE ONLY 50 PER CENT OF THE GROSS DOMESTIC PRODUCT,+ MR. JEAFFRESON REMARKED.

+THIS FACT MEANS THAT WE ARE VERY DEPENDENT ON FORCES OVER WHICH WE HAVE ABSOLUTELY NO CONTROL,+ MR. JEAFF RESON CONTINUED.

+ALL THE MORE IMPORTANT, THEN, THAT WE MAKE SURE THAT THE SIZE OF THE PUBLIC SECTOR, OVER WHICH WE DO HAVE SOME CONTROL, IS CONTAINED BY WHAT THE ECONOMY WILL PERMIT. +

THIS CONSIDERATION DID NOT APPLY IN THE CASE OF COUNTRIES WITH MUCH MORE CLOSED ECONOMIES THAN OURS. FOR A FAILURE TO MA INTA IN EXTERNAL COMPETITIVENESS IN THEIR CASE COULD BE MASKED AND AT LEAST PARTLY ABSORBED IN THE RELATIVELY LARGE SECTORS OF SUCH ECONOMIES NOT CONCERNED WITH EXTERNAL TRANSACTIONS. EVEN SO, THESE COUNTRIES WERE CLEARLY BECOMING INCREASINGLY CONCERNED WITH THE SIZE OF THEIR PRIVATE SECTOR.

MR. JEAFFRESON SAID THAT IN THE FOUR YEARS 1973/74 - 1976/77, THE PUBLIC SECTOR REPRESENTED 17.2 PER CENT OF THE GROSS DOMESTIC PRODUCT, AN INCREASE OF ONE FIFTH COMPARED WITH THE PREVIOUS FOUR YEARS.

+A PUBLIC SECTOR OF THIS RELATIVE SIZE IS CLEARLY NOW WITHIN THE ECONOMY'S CAPABILITY: IF NECESSARY, IT COULD BE LIFTED A LITTLE FURTHER WITHOUT DETRIMENT AS IT WILL BE IN 1977/78 WHEN, ACCORDING TO THE BUDGET SPEECH, IT WILL RISE TO 17.6 PER CENT, UP BY ONE THIRTEENTH ON 1976/77 WHEN IT WAS 16.4 PER CENT,+ HE SAID.

ON THE RELATIONSHIP OF CAPITAL AND RECURRENT ACCOUNTS, MR, JEAFFRESON SAID WE LIKED TO MAKE SURE THAT OUR RECURRENT COMMITMENTS GROW IN RELATION TO RECURRENT REVENUE.

+WE HAVE TAKEN THE VIEW THAT RECURRENT EXPENDITURE SHOULD ABSORB NO MORE THAN 80 PER CENT OF RECURRENT REVENUE AND THAT AT LEAST 60 PER CENT OF CAPITAL EXPENDITURE SHOULD BE FINANCED BY THE SURPLUS ON RECURRENT ACCOUNT,+ HE SAID.

TURNING TO THE RESIDUAL DEFICIT ON CAPITAL ACCOUNT,

MR. JEAFFRESON SAID THAT THE 20 PER CENT REMAINING AFTER EXPENDITURE OF 80 PER CENT OF RECURRENT REVENUE WAS THEN AVAILABLE FOR FINANCING CAPITAL EXPENDITURE.

+WHAT IF THIS 20 PER CENT IS INADEQUATE FOR THE PURPOSE?+ HE ASKED.

+THE ANSWER IS TO USE CAPITAL REVENUE, WHICH MEANS FOR HONG KONG THE YIELD FROM THE GOVERNMENT'S MAIN CAPITAL ASSET WHICH IS, OF COURSE, LAND.+

THE YIELD FROM THE SALE OF LAND WAS ERRATIC. IT DEPENDED ON THE AMOUNT OF LAND AVAILABLE FOR SALE AND THE PRICE IT FETCHED. BUT WE AIMED TO ACHIEVE THE GUIDELINE THAT, EVERY YEAR, WE SELL ENOUGH TO BRING IN SUFFICIENT MONEY TO FINANCE AT LEAST HALF OF THE CAPITAL EXPENDITURE WHICH HAD NOT BEEN COVERED BY RECURRENT REVENUE.

/IF NEITHER