XN000022-1979-02-28 — Page 13

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WEDNESDAY, FEBRUARY 28, 1979

OBVIOUSLY, THE FINANCIAL SECRETARY SAID, THE EMPHASIS OF BUDGETARY POLICY AS BETWEEN THESE FIVE OBJECTIVES WOULD VARY FROM YEAR TO YEAR. WHATEVER THE EMPHASIS, HE SAID, DECISIONS HAD TO BE TAKEN EACH YEAR ON THE BASIS OF THE RELATIVE SIZE OF THE PUBLIC SECTOR, THE CONSTRUCTION OF THE EXPENDITURE BUDGET, THE EMPHASIS OF FISCAL POLICY AND THE RATE AT WHICH POLICIES AND PROGRAMMES COULD BE IMPLEMENTED HAVING REGARD TO PREVAILING CAPACITY AND OTHER ECONOMIC CONSIDERATIONS.

+TO ASSIST US IN THIS ANNUAL DECISION-MAKING PROCESS WE SUBJECT OUR THINKING IN EACH OF THESE FOUR AREAS TO THẾ DISCIPLINE OF CERTAIN GUIDELINE RATIOS,+ HE SAID.

REFERRING TO RELATIVE SIZE OF THE PUBLIC SECTOR, THE FINANCIAL SECRETARY SAID THE +ACCEPTABLE RELATIVE SIZE+ WAS SMALLER ON THE UPSWING PHASE OF THE TRADE CYCLE THAN ON THE DOWNSWING BUT WOULD TEND TO INCREASE AGAIN AS THE RECOVERY PHASE MATURED.

+THIS DOES NOT MEAN, OF COURSE, THAT THE GROWTH RATE OF PUBLIC EXPENDITURE SHOULD NOT BE TRIMMED BACK ON THE DOWNSWING AS PART AND PARCEL OF THE PROCESS OF THE ECONOMY DEFLATING OUT OF TROUBLE OR WHEN THE PRESSURE OF DEMAND IS SUCH THAT A SITUATION OF DEMAND-PULL INFLATION IS THREATENED, HE SAID.

TOUCHING ON THE CONSTRUCTION OF THE ANNUAL BUDGET, THE FINANCIAL SECRETARY SAID THE GUIDELINES WERE 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.

FURTHERMORE AN UPPER LIMIT WAS SET TO RECURRENT EXPENDITURE OF 70 PER CENT OF TOTAL EXPENDITURE.

BUT, AS THE SURPLUS ON RECURRENT ACCOUNT COULD FINANCE A QUANTUM OF CAPITAL EXPENDITURE WHICH THESE RATIOS DID NOT DEFINE. SEPARATE ABSOLUTE GUIDELINE FIGURES HAD TO BE SET FOR THE VARIOUS COMPONENTS OF THE CAPITAL ACCOUNT AND THESE WERE REVISED PERIODICALLY.

THE RESIDUAL DEFICIT ON CAPITAL ACCOUNT SHOULD BE FINANCED AT LEAST 50 PER CENT BY CAPITAL REVENUE AND NO MORE THAN 50 PER CENT BY DEBT, THE FINANCIAL SECRETARY SAID.

HE SAID THE BALANCE OF THE FISCAL SYSTEM NEED TO BE DEFINED IN TERMS OF THE RATIO OF DIRECT TO INDIRECT TAXATION AND THE RATIO OF DIRECT AND INDIRECT TAXATION TAKEN TOGETHER TO ALL OTHER RECURRENT REVENUE.

FOR THE TIME BEING HE SAID HE HAD SET THE RATE AT WHICH EXPENDITURE MIGHT BE ALLOWED TO GROW OVER TIME IN REAL TERMS AT 10 PER CENT, +WHICH IS A LITTLE HIGHER THAN THE HISTORICAL TREND GROWTH RATE OF G.D.P.+

REFERRING TO FISCAL RESERVES, THE FINANCIAL SECRETARY SAID HE HAD TAKEN THE VIEW THAT THE NET FISCAL RESERVES AT THE BEGINNING OF A FINANCIAL YEAR SHOULD ALWAYS BE SUFFICIENT TO FINANCE AT LEAST 15 PER CENT OF ESTIMATED EXPENDITURE IN THAT YEAR.

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