XN000022-1986-02-26 — Page 34

WEDNESDAY, FEBRUARY 26, 1986

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SIR JOHN WENT ON: +SETTING ASIDE OTHER ARGUMENTS, THE ADDITION OF ONE PERCENTAGE POINT TO THE PRESENT STANDARD RATE OF 17 PER CENT IS NOW ESTIMATED TO YIELD $150 MILLION IN THE FIRST YEAR AND $300 MILLION IN A FULL YEAR. SIMILARLY, THE ADDITION OF ONE PERCENTAGE POINT IN THE CORPORATE RATE OF 18.5 PER CENT WOULD YIELD $230 MILLION IN THE FIRST YEAR AND $485 MILLION IN A FULL YEAR.

+ IF THEREFORE, THERE IS SUPPORT FOR FURTHER INCREASES IN PUBLIC SECTOR EXPENDITURE, WHICH I BELIEVE WOULD BE MOST UNWISE PARTICULARLY AT THIS JUNCTURE, MEMBERS CAN SEE WHAT IT WOULD COST TO BALANCE INCREASED SPENDING BY HIGHER DIRECT TAXATION.

+THEY CAN ALSO EASILY JUDGE WHAT INCREASES IN INDIRECT TAXATION WOULD BE INVOLVED. NATURALLY A DEGREE OF JUGGLING OR DIFFERENTIAL SLICING REMAINS POSSIBLE THOUGH LONG TERM STABILISATION OF ALL TAX MEASURES IS AN IMPORTANT CONSIDERATION. A SALES OR VALUE ADDED TAX REMAINS A THEORETICAL POSSIBILITY. WHATEVER WE DO MUST BE SUITABLE FOR HONG KONG. I ASSUME THAT FEW WILL ADVOCATE DEFICIT FINANCING IN OUR CIRCUMSTANCES+.

EXPENDITURE OVER 16 PER CENT OF GDP

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PUBLIC SECTOR EXPENDITURE IN 1985-86 WILL BE OVER 16 PER CENT OF THE GROSS DOMESTIC PRODUCT, BUT WOULD BE APPRECIABLY LOWER IF GDP ITSELF HAD NOT BEEN LOWER THAN FORECAST, THE FINANCIAL SECRETARY, SIR JOHN BREMRIDGE, SAID TODAY.

THE CUT OF ABOUT THREE PERCENTAGE POINTS IN THREE YEARS WAS STILL VERY LARGE, SIR JOHN SAID. HOWEVER PAINFUL, CONTROL OF PUBLIC SECTOR EXPENDITURE WAS OF FUNDAMENTAL IMPORTANCE. HONG KONG HAD TO BE FRUGAL.

HE BELIEVED EXPENDITURE SHOULD RUN AT ABOUT THE SAME PERCENTAGE LEVEL IN 1986-87 AND IN THE YEARS BEYOND, THOUGH IT WAS IMPOSSIBLE TO MAKE ACCURATE FORECASTS.

THE

HE SAID: +AS ONE EXAMPLE OF ADMINISTRATIVE PROBLEMS PROVISIONAL ACCEPTABLE LEVELS OF EXPENDITURE FOR THE NEXT YEAR HAVE TO BE RELEASED TO BRANCHES AND DEPARTMENTS OF THE GOVERNMENT IN SEPTEMBER, THAT IS AT LEAST FIVE MONTHS BEFORE THE BUDGET DATE. ITSELF A MONTH BEFORE THE NEW FINANCIAL YEAR STARTS. THEY CANNOT THEREFORE BE BASED ON ANY (RELATIVELY) ACCURATE FORECAST OF THE CURRENT YEAR'S EXPENDITURE OR OF EXPECTED GROWTH IN THE SUBSEQUENT FINANCIAL YEAR'S GDP.

/+THOUGH WE