XN000022-1986-02-26 — Page 41

WEDNESDAY, FEBRUARY 26, 1986

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+OPERATING SURPLUS VITAL+ ****

THE MAINTENANCE OF A RECURRENT, OR OPERATING, SURPLUS WAS VITAL TO THE STABILITY OF THE GOVERNMENT'S FINANCES, THE FINANCIAL SECRETARY, SIR JOHN BREMRIDGE, SAID IN HIS BUDGET SPEECH.

EVEN WITH THE RECENT RECOVERY IN PROPERTY PRICES, THE GOVERNMENT HAD HAD TO LEARN TO ACCEPT A MUCH LOWER PROPORTION OF ITS CAPITAL PROGRAMMES BEING FINANCED FROM CAPITAL REVENUE.

THIS SHIFT IN EMPHASIS HAD NOW BEEN ACHIEVED, SIR JOHN SAID, AND TO MAINTAIN IT WOULD REQUIRE CONSTANT CARE THROUGH REGULAR REVIEWS OF SPECIFIC RATES OF TAXES AND CHARGES TO ENSURE THAT THEIR REAL VALUE WAS KEPT UP TO DATE,

+THE LESSON OF THE LATE 1970'S AND EARLY 1980'S IS CLEAR,+ SIR JOHN SAID. IF WE EVER ALLOW THIS OPERATING SURPLUS TO SLIP, FALSELY REASSURED BY A TEMPORARY ABUNDANCE OF CAPITAL REVENUE, IT WILL BE A PAINFUL PROCESS TO EFFECT REPAIR.+

SIR JOHN SAID TOTAL EXPENDITURE GROWTH IN REAL TERMS WAS PROJECTED TO BE BETWEEN ABOUT 3.5 AND 4 PER CENT A YEAR, WHICH WAS SLIGHTLY BELOW ASSUMED ECONOMIC GROWTH. THIS SHOULD BE SUFFICIENT, AVERAGED OVER SEVERAL YEARS, TO FINANCE ADDITIONAL STAFFING AND OTHER RECURRENT COSTS FLOWING FROM THE COMPLETION OF NEW PROJECTS AND FACILITIES, AND TO RESPOND REASONABLY TO PROJECTED DEMANDS FOR NEW OR IMPROVED SERVICES.

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+AT THIS RATE OF GROWTH, PUBLIC SECTOR EXPENDITURE SHOULD STAY AROUND 16 PER CENT OF GROSS DOMESTIC PRODUCT (GDP), HAVING FALLEN IN RECENT YEARS FROM A HIGH OF JUST OVER 19 PER CENT IN 1982-83, + SIR JOHN SAID.

+VIEWED IN ANOTHER WAY, ON CONSERVATIVE ASSUMPTIONS 16 PER CENT OF GDP REPRESENTS THE LEVEL OF PUBLIC ACTIVITY SUPPORTABLE BY PRESENT FISCAL POLICY.

ABOUT

+NOTHING THAT I HAVE SAID IMPLIES THAT A FIGURE LOWER THAN 16 PER CENT IS NOT ACHIEVABLE. IT WILL COME IF GDP GROWTH BURGEONS. ON THE OTHER HAND, SOME WILL PRESS FOR GREATER PUBLIC SECTOR EXPENDITURE. IF CONCÉDED, IT WOULD HAVE TO BE PAID FOR BY HIGHER TAXES, SIR JOHN SAID.

COMMENTING ON THE GOVERNMENT'S LATEST MEDIUM-RANGE FORECAST FOR GOVERNMENT FINANCES UP TO THE END OF THE DECADE, SIR JOHN SAID IT WAS NOT A PLAN, BUT A BASELINE AGAINST WHICH PROGRESS COULD BE MEASURED AND THE NEED FOR FURTHER ACTION ASSESSED.

/*I MUST ...........